Wingtech 1H24 sales were up 15% YoY to RMB33.6bn, driven by strong ODM sales (up 27% YoY), partially offset by weaker semiconductor sales (down 8% YoY). NP declined 89% YoY to RMB140mn, as GPM deteriorated to 9.5% in 1H24 (vs. 17.6%/14.7% in 1H23/2H23). Semi. GPM showed signs of recovery (up 7.7ppt in 2Q). We expect ODM GPM to improve in 2H24 to 5.0% from 2.5% in 1H24. We think 1H24 should likely be the bottom. Maintain BUY, with a new TP of RMB48.

Semi. business showed signs of recovery with 6% QoQ revenue growth and 7.7ppt increase in GPM in 2Q. Semi. sales dropped to RMB3.4bn in 1Q (-10% YoY/-5% QoQ) but managed to grew 6% QoQ to RMB 3.6bn in 2Q. The weakness was mainly due to a soft demand for auto semi (63% of 1H24 segment rev.), as the sector was experiencing inventory correction. GPM dipped to 31.0% in 1Q (-2.8ppt/10.7ppt vs. 4Q23/1Q23) but rebounded to 38.7% in 2Q. We expect GPM to maintain at 2Q level in 2H, considering mixed impacts of 1) ongoing inventory digestion in auto market, 2) an improving utilization rate, 3) a favorable product mix and 4) cost optimization. We project segment sales to grow 12% YoY and GPM to increase to 40% in 2025 on lower channel inventory and better demand.

ODM business grew on new orders from overseas clients; mobile- related ASP slid, reflecting a challenging market with consumption downgrade trend and intensified competition. ODM revenue grew 21% YoY to RMB12.4bn in 1Q and another 10% QoQ to RMB13.7bn in 2Q. However, GPM deteriorated to 3%/2% in 1Q/2Q (vs. 9% for 1H23), due to low-margin orders and rising material/headcount costs. ODM segment posted a net loss of RMB350mn in 1H24. Mgmt. expects NP to breakeven in 3Q and turn positive in 4Q. We project ODM segment sales to grow 12% YoY in 2025 on better consumer sentiment and GPM to increase to 6.3% (still lower than previous 8%-10% range), reflecting effective cost control against the backdrop of ongoing consumption downgrade pressure.

Maintain BUY, as the worst is behind. We have lowered our earnings estimates by 73%/42% for 2024/25E, given the GPM challenges. We estimate Wingtech's sales to grow low-teens HoH/YoY in 2H24/2025, with gradual margin recovery (up 2.8ppt in 2H vs. 1H, up 2.2ppt in 2025). Our TP is trimmed to RMB48, based on 23.5x 2025E P/E, close to 1SD below 1-yr hist. avg., reflecting persist challenges from ongoing inventory correction of power semi in auto market and consumption downgrade pressure on ODM GPM.