MAXSCEND(300782)：REVENUE GREW WHILE GPM DETERIORATED DUE TO INTENSE COMPETITION AND CAPACITY RAMP-UP

　　Maxscend reported 1H24 results. Revenue grew 37% YoY to RMB2.3bn from a low base in 1H23, driven by clients’ restocking behavior. GPM declined to 42.1%, down 6.9ppt from 1H23. Margin erosion was mainly due to 1) an unfavorable revenue mix towards higher module sales, 2) ramp up in fab production and 3) intensified competition. Despite a slow recovery in consumer demand and prolonged replacement cycle of handsets, we expect Maxscend to outperform its peers, with its unique fab-lite model to support 1) supply chain security, 2) better product performance and 3) potential in cost optimization once utilization reaches a higher level. Maintain BUY with adj. TP at RMB100.
　　We remain optimistic that Maxscend’s module business will drive future growth. By segment, discrete products revenue grew 15% YoY in 1H24, while module products grew 81% YoY. Module revenue contribution increased steadily from 29%/36% in 2022/23 to 45% in 1H24. We expect module sales to grow further by 37%/30% YoY in 2024/25E, driven by the modulization trend in RFFE sector. We hold a positive outlook for Maxscend with the company’s recent development in filters, which will enhance Maxscend’s capabilities in meeting clients’ customization and miniaturization requirements that eventually lead to market share gains.
　　We see domestic RFFE suppliers are all facing ASP pressures from a deteriorating industry environment, as competition gets intensified. However, we think the impact will be mitigated eventually as the sector continues to consolidate. In addition, Maxscend is increasing its high-end product coverage with its own fabrication capacities. Looking forward, the launch of new products will be in focus. We think new product ramp-up will weigh on GPM in the near term. We project overall GPM to be 41.9%/42.2% for 2024/25E.
　　Maintain BUY rating. We cut 2024/25E earnings forecasts by 31%/27% on GPM pressure from longer-than-expected price war. TP is trimmed to RMB100, based on 44.5x 2025E P/E, which is 1SD below 1-year hist. avg. fwd. P/E, given near-term GPM pressures and uncertainties in mobile recovery. We think Maxscend will be a key beneficiary of the semiconductor localization trend in China. Despite a challenging market, the company’s growth story is intact, in our view. Its fabrication capabilities will serve as a pillar stone for its long-term development.
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