WINGTECH(600745)：STRONG 2Q23 RESULTS ON ODM BUSINESS TURNING PROFITABLE

　　Wingtech released its 1H23 results, posting revenue and NP growth of 2.5% and 7.2% YoY. By segment, ODM/semi sales (accounted for 71%/26% of the total business) grew 6.2%/-0.3% YoY. Overall GPM was 17% amid soft consumer electronic consumption. We think Wingtech’s management is making material progress to stabilize and grow its multiple business segments. ODM and optical module segments have turned profitable in 2Q23, suggesting these businesses are back on track for growth, which should alleviate market concerns on its legacy business’ competitiveness and new business’ integration and growth. We expect these positive signs can boost investors’ confidence in Wingtech.Maintain BUY, with TP adjusted to RMB68.
　　Semi business continued its resilience helped by strong auto growth.Its auto semi sales grew 26.9% YoY in 1H23, continuing the strong growth momentum (36.5%/28.0% YoY in 2021/22). We expect the trend to persist into 2H23/2024. However, the semi business is not immune to the broader weakness in consumer electronics market: mobile/computing/consumer- related semi sales declined by 64.5%/17.4%/38.7% YoY, offsetting the growth from auto. Industrial and electricity sales was flat with 2.2% YoY growth. Overall semi sales decreased by 0.3% YoY, with GPM staying above 40%.
　　ODM and optical module business turned profitable in 2Q23, showing these businesses are on track for future growth. ODM’s NPM was finally positive with 1.1% in 2Q23 vs. -4.0%/-1.0% in 2022/1Q23. Despite soft consumer electronic spending, Wingtech ODM sales grew 13.7% YoY in 2Q23, showing the Company is regaining its competitiveness in the ODM market. Optical module’s net profit was RMB41mn in 2Q23 vs. RMB- 335mn/RMB-48mn in 2022/1Q23. This segment is ramping up capacity and expanding consumer base. We expect these two segments will help lift overall NPM in the following years.
　　Maintain BUY with TP adjusted to RMB68, based on 25x FY24 P/E, slightly below avg. 1-year forward P/E multiple, as consumer electronic inventory ingestion is longer-than-expected. We think the Company’s valuation at the current level looks attractive (trading 15x 2024 P/E), as most negative news have been priced in already. Upside catalysts: 1) new 12- inch factory to begin production; 2) ODM and optical modules’ new projects to begin mass production. Downside risks: 1) macro challenges such as overseas inflation and slowdown in economic growth; and 2) delay/disruption in operations; 3) further share selling from major shareholders.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。