FY24 result in-line with profit alert, thanks to GM improvement and lower OPEX ratio
　　QT’s FY24 net profit arrived at near the mid-point of the profit alert (issued in mid-Jan 25), revenue and net profit each rose 28.9%/2.41x Yoy to RMB16,151mn/RMB279mn. QT’s revenue was above our forecast by 7%, but net profit came in 5.4% below our estimates due to higher effective tax rate (39% in FY24 vs. 22% in FY23). In FY24, QT’s tax dispute in India (as disclosed in Nov 2024) which gave rise to relevant tax provision (~RMB89mn) and DTA adjustment (~RMB65mn). The robust FY24 result was attributed to i) improved smartphone demand led to CCM shipment volume and QT’s market share increase in global smartphone OEMs; ii) Blended GM was up 2.0ppts Yoy /0.9 ppts Hoh Yoy to 6.1%, thanks to higher utilization rate and better product mix. GM slight beat market consensus (median estimate at 5.7%), but largely in-line with our 5.9% forecast; iii) Non- smartphone segment ramp-up and iv) share of Newmax loss narrowed by 26% to RMB36.5mn. QT declare HK$0.10/RMB0.093 final dividend (the first final dividend since FY20), equivalent to 39% payout ratio.
　　Decent FY25E shipment guidance; Improved product mix to drive ASP and GM; Non-smartphone CCM (automotive+ IoT) shipment volume growth continue to outperform
　　QT’s CCM revenue grew 28.2% Yoy to RMB14,819mn driven by both ASP and smartphone CCM shipment volume growth (+10.4% Yoy /+15.4% Yoy). Improved smartphone demand and product mix (i.e. higher mix of. ≧32MP and other CCM) further drove CCM GM up by 0.5 ppts HoH to 6.1% (vs. 5.7%/3.6%/3.6%/4.9%/5.6% in 1H22/2H22/1H23/2H23/1H24), the highest since 2H21.
　　In FY24, ≧32MP CCM shipment rocketed 42.5% Yoy and took up 50.8% of total CCM shipment, in which the contribution hit a record high at 59% in Dec 2024. Management also shared that OIS and periscope CCM each accounted for 12.9%/1.8% of total CCM shipment (1H24:12.0%/0.7%) and further guided periscope sales volume to grow more than double in FY25E. QT’s FY25E guidance on CCM include: i) ≧32MP CCM to account for >55% of total CCM shipment and ii) Non-handset CCM sales volume to grow >40% Yoy
　　QT’s non-smartphone CCM shipment grew 59% Yoy to 12mn in FY24 (~2.8% of total CCM shipment. This reflects QT continued to make good progress in non-smartphone segment. For automotive CCM products, sales volume was up 445% Yoy in FY24 (with total capacity currently at 1mn units/month) QT established co-operative relationships with 7 leading global intelligent driving solution providers (Tier-1) and obtained supplier qualification from 34 leading global car brands including NEV brands.
　　Q tech not only has shipped CCM used in ADAS/ in-cabin systems to renowned clients including SGMW, Geely, XPeng, but also passed the qualification certification from other automotive Tier-1 supplier (both overseas and domestic) and OEMs namely Continental, BYD, Nio, Aito and Aion etc. These mark QT initial success to diversify CCM product mix and exploring business opportunities in non-smartphone segment, which include AD/ADAS, sensing and viewing products. QT expects LiDAR products will be shipped in 2H25E.
　　QT targets to become a Tier -1.5 player provide both hardware and software solutions to Tier-1. Though automotive CCM would enjoy both higher ASP and GM in the long run. In IoT, QT has become the core CCM supplier for the global leading brand of customer drone and portable imaging device. QT also established co-operative relationships with leading global VR headset brands and high-calibre domestic embodied robot company. QT’s non-smartphone arm is still ramping up and takes time to achieve economy of scale, we expect non-smartphone GM would stay below company average in FY25E-26E.
　　In 2M25, QT’s total CCM shipment (incl both smartphone + non-smartphone) reached 59.8mn units and smartphone CCM　contributed ~96% of total shipment. We model QT’s FY25E total CCM shipment would be ~430mn units (+15.0% Yoy), in which non-smartphone CCM (IoT+ auto CCM) shipment would contribute ~3% (>15mn units) of total CCM shipment.
　　CCM’s ASP posted another back-to-back Yoy/HoH in 2H24, ASP reached ~RMB36.0 (+11.5% Yoy /+10.1% HoH), We expect increased contribution from high end CCM and lower material cost would continue benefit QT’s GM recovery in FY25E-FY26E.
　　FPM GM turnaround on improved product mix, ultrasonic FPM to drive ASP and margin
　　In FY24, FPM segment revenue beat our forecast by 19% and soared 50% Yoy to RMB1,178mn (7.3% of total revenue vs. 1H24 : 5.1%), on the back of 3.3% Yoy increase in ASP due to successful ultrasonic FPM ramp up, and 46.0% Yoy increase in shipment volume at 161.0mn units. Segment GM significantly turnaround at 4.9% in FY24 (vs. 1H24: -3.7%) on higher UGFP+ ultrasonic FPM volume mix (66% in total in FY24). QT began to ship ultrasonic FPM in Apr 24 and accounted ~ 5% of total FPM shipment in FY24 (vs. our estimate at low single digit). QT guided FY25E shipment to grow >20%, we expect UGFP and ultrasonic FPM each would account for >50%/ low-mid teens of FPM shipment in FY25E/26E. With increasing ultrasonic FPM contribution in FY25E/26E, we still expect both ASP and GM have room to improve.
　　Expect FY24-27E earnings to grow 30% CAGR, quality growth to drive earnings; Non-smartphone segment still takes time to bear fruit; Maintain BUY
　　We life QT’s FY25E/26E earnings forecasts by 10.1%/10.2% and introduce FY27E estimates. We expect QT’s FY24-27E sales and net profit to grow 12.6%/30.5% CAGR, driven by gradual sales and GM recovery, as management continue to focus on long term quality growth, while non-smartphone segment is still ramping up and contribution would be minimal in FY25E/26E.
　　QT is trading at FY25E 18.0x PE (~13% above its average since listing in 2014). We arrive QT’s new TP at HK$9.42, which translates to FY25E 22.2x PE (unchanged 30% discount to Sunny Optical). QT continues making their way to diversify sales and client mix. It still takes time for non-smartphone segment to bear fruit, while focusing on core business quality growth. We maintain QT’s rating at BUY.