BaTeLab posted strong 1H24 earnings. Revenue grew by 42.1% YoY to RMB291mn driven by 1) continued launch of new industrial products (SKUs reached over 500 in 1H24 from ~400 in FY23), 2) strengthened partnership with key customers (new energy revenue contributed 30% of total revenue in 1H24, and 3) an expanded distribution network (partnership with several new distributors). Net profit grew by 46.3% YoY to RMB67mn. 1H24 revenue/NP accounted for 45%/46% of our full-year estimates (vs. 44%/42% for 1H23). Gross margin declined to 51.3% in 1H24 from 55.2%/55.4% in 1H23/FY23 mainly due to higher inventory provisions. Excluding this impact, GPM remained stable on a YoY basis (1H23: 55.2%). Net profit margin was 23.1% in 1H24, compared to 22.4%/23.5% in 1H23/FY23. The company is one of China's leading industrial-grade analog IC patterned wafer providers with its proprietary EDA tools and a reusable IP library. We continue to like BaTeLab as the company's 1H24 results confirm its growth trajectory remains intact. Maintain BUY on BaTeLab with unchanged TP at HK$49.8, based on the same 19x 2024E P/E.

Expect revenue to maintain strong growth on continued expansion of SKUs. BaTeLab's revenue has experienced strong growth in the past four years (73.6% 2020-2023 CAGR). One of the key drivers is fast expansion of analog IC patterned wafer product offerings (8/45/157/~400 during 2020- 2023). By end-1H24, the number had increased to 500+, confirming the company's strength in R&D and strong execution of the mgmt. team. We expect BaTeLab's FY24/FY25 sales will grow at 40.2%/37.8% YoY, respectively (unchanged estimates). In addition, BaTeLab has built stronger partnership with distributors. In 1H24, 90% of the company's revenue came from sales through distributors, up from 87.5% in FY23. We believe this is a smart strategy as the company leverages distributors' sales channels while reducing reliance on any single customer.

Maintain BUY rating with unchanged TP at HK$49.8. Despite that the 1H24 GPM (51.3%) was lower than our full-year forecast of 53.8%, it was mainly an accounting adjustment effect (higher inventory provisions). We remain confident that the company can maintain its GPM at 53-55% in 2024- 26E. Maintain BUY on BaTeLab with an unchanged TP at HK$49.8, based on the same 19x 2024E P/E (1-year historical avg. forward P/E of its semiconductor peers listed on HK stock market). The stock is currently trading at 10x/7x 2024/25E P/E, which is very attractive in our view. Potential risks: 1) volatile economic conditions; 2) change in relationship with its core customers or suppliers; and 3) slower-than-expected introduction of new product categories.