Revenue and Sales Performance - Revenue for the six months ended June 30, 2024, was approximately RMB 7,675,142,000, a 40.1% increase compared to the same period in 2023, driven by a 30.8% year-on-year growth in camera module sales[2] - Revenue from camera modules increased to RMB 7,214,806 thousand in the first half of 2024, up from RMB 4,992,280 thousand in the same period of 2023, representing a significant growth[14] - Total revenue from customer contracts reached RMB 7,675,142 thousand in the first half of 2024, up from RMB 5,476,543 thousand in the same period of 2023[14] - Revenue from Customer A increased to RMB 2,213,145 thousand in the first half of 2024, compared to RMB 1,517,569 thousand in the same period of 2023[16] - Revenue from Customer B decreased slightly to RMB 1,854,663 thousand in the first half of 2024, down from RMB 1,987,608 thousand in the same period of 2023[16] - Revenue from Customer C was RMB 1,012,022 thousand in the first half of 2024, contributing less than 10% of the company's total revenue[16] - Revenue from external customers for the camera module segment increased to RMB 7,214,806 thousand in the first half of 2024, up from RMB 4,992,280 thousand in the same period of 2023, representing a growth of approximately 44.5%[19] - The fingerprint recognition module segment reported a slight increase in revenue from external customers, reaching RMB 394,671 thousand in the first half of 2024 compared to RMB 394,653 thousand in 2023[19] - Total revenue from external customers across all segments rose to RMB 7,675,142 thousand in the first half of 2024, a 40.1% increase from RMB 5,476,543 thousand in the same period of 2023[20] - Revenue from mainland China accounted for RMB 6,315,540 thousand in the first half of 2024, up 46.6% from RMB 4,307,348 thousand in 2023, highlighting strong growth in the domestic market[21] - The company's revenue reached RMB 7,675,142,000, a 40.1% YoY increase[54] - The company's revenue for the period was approximately RMB 7,675,142,000, a year-on-year increase of 40.1%, driven by a 30.8% growth in camera module sales[61] Profitability and Financial Performance - Gross profit for the period was RMB 400,099,000, with a gross margin of 5.2%, up 1.8 percentage points from 3.4% in the same period last year, primarily due to improved capacity utilization and a higher proportion of high-end products[2] - Net profit for the period was RMB 115,232,000, a significant increase of 431.2% compared to the same period in 2023, driven by higher revenue and improved gross margin[2] - Basic and diluted earnings per share were both RMB 0.097, compared to RMB 0.018 in the same period last year[2] - Operating profit for the period was RMB 220,693,000, compared to RMB 102,754,000 in the same period last year[4] - The company's profit before tax surged to RMB 125,684 thousand in the first half of 2024, a significant increase from RMB 8,215 thousand in the same period of 2023[20] - The company's profit surged by 431.2% YoY to RMB 115,232,000[55] - Gross profit surged by 112.5% to approximately RMB 400,099,000, with gross margin improving to 5.2% from 3.4% due to increased sales of high-end camera modules and improved capacity utilization[63] - Net profit soared by 431.2% to approximately RMB 115,232,000, driven by a 40.1% increase in revenue and a 1.8 percentage point improvement in gross margin[71] Product and Market Performance - Sales of camera modules with 32 megapixels and above, as well as those for non-smartphone applications, accounted for 49.2% of total camera module sales, contributing to improved product value and gross margin[2] - Revenue from fingerprint recognition modules remained stable at RMB 394,671 thousand in the first half of 2024, compared to RMB 394,653 thousand in the same period of 2023[14] - The company's primary business includes the production and sale of camera modules and fingerprint recognition modules for mobile phones, automotive, IoT, and other smart mobile devices[13] - The company operates in two reportable segments: Camera Modules and Fingerprint Recognition Modules, managed based on business lines[17] - High-end camera modules (32MP and above) accounted for 49.2% of total camera module sales[55] - The sales volume of camera modules with 32 million pixels and above for smartphones and other fields accounted for 49.2% of total camera module sales, exceeding the target of 45%[56] - Sales of camera modules for automotive and IoT fields increased by 100.4% year-on-year, surpassing the target of at least 50%[56] - Sales of camera modules for smartphones increased by 29.6% year-on-year, exceeding the target of at least 5%[56] - The proportion of optical under-display fingerprint recognition modules in total fingerprint recognition module sales increased from 58.5% to 71.6%[56] - The company's camera module sales increased by 30.8% YoY, with sales for smart cars and IoT devices growing by 100.4% YoY[54] Financial Position and Assets - Total assets as of June 30, 2024, were RMB 11,106,689,000, an increase from RMB 9,961,083,000 as of December 31, 2023[7] - Total equity attributable to the company's shareholders was RMB 4,936,683,000 as of June 30, 2024, up from RMB 4,831,751,000 as of December 31, 2023[9] - The company's inventory as of June 30, 2024, was RMB 1,777,515,000, compared to RMB 1,408,332,000 as of December 31, 2023[7] - Cash and cash equivalents as of June 30, 2024, were RMB 2,893,084,000, up from RMB 1,710,030,000 as of December 31, 2023[7] - Trade receivables and bills receivable as of June 30, 2024, amounted to RMB 3.420 billion, a decrease from RMB 3.916 billion as of December 31, 2023[35] - The aging analysis of trade receivables and bills receivable shows that 71.8% (RMB 2.454 billion) were within 1 month, 27.9% (RMB 954.753 million) were between 1 to 3 months, and 0.3% (RMB 9.273 million) were between 3 to 6 months as of June 30, 2024[36] - The company's foreign currency derivative liabilities decreased to RMB 44.096 million as of June 30, 2024, from RMB 52.300 million as of December 31, 2023[37][38] - Total bank borrowings as of June 30, 2024, were RMB 4.139 billion, a decrease from RMB 4.371 billion as of December 31, 2023[40] - The company's secured bank loans decreased to RMB 408.395 million as of June 30, 2024, from RMB 977.19 million as of December 31, 2023, with assets including shares of an associate company and bank deposits used as collateral[41][42] - The company's total bank loans due within one year or on demand amounted to RMB 4.018 billion as of June 30, 2024, compared to RMB 4.151 billion as of December 31, 2023[43] - Trade payables and notes payable decreased to RMB 4.179 billion as of June 30, 2024, from RMB 5.227 billion as of December 31, 2023[44] - The aging analysis of trade payables and notes payable showed that RMB 3.469 billion was due within 3 months as of June 30, 2024, compared to RMB 4.032 billion as of December 31, 2023[45] - Bank loans decreased by 9.1% to approximately RMB 4,139,304,000 as of June 30, 2024, compared to the same period last year[72] - Cash and cash equivalents decreased by RMB 906,231,000 to approximately RMB 1,710,030,000 as of June 30, 2024, due to increased long-term bank deposits and repayment of loans[72] - Operating cash flow turned positive to approximately RMB 691,268,000, compared to a net outflow of RMB 89,714,000 in the same period last year[73] - Capital gearing ratio decreased by 6.7 percentage points to 84.1% as of June 30, 2024, due to a reduction in bank loans[76] - Adjusted net gearing ratio decreased to 19.5% as of June 30, 2024, down by 5.3 percentage points from 24.8% at the end of 2023, primarily due to reduced short-term and long-term bank borrowings and increased equity[77] - Total pledged assets decreased to RMB 1,073,223,000 as of June 30, 2024, down by RMB 340,213,000 from RMB 1,413,436,000 at the end of 2023, used as collateral for bank loans and guarantees[83] Costs and Expenses - Inventory costs rose to RMB 7,409,240 thousand in the first half of 2024, a 38.2% increase from RMB 5,361,874 thousand in 2023, driven by higher employee costs and depreciation expenses[26] - Employee costs, including salaries and benefits, increased to RMB 508,881 thousand in the first half of 2024, up 37.4% from RMB 370,497 thousand in 2023[28] - Depreciation expenses rose to RMB 233,583 thousand in the first half of 2024, a 16.3% increase from RMB 200,828 thousand in 2023[25] - Sales cost increased by 37.6% to approximately RMB 7,275,043,000 compared to the same period last year, driven by a 40.1% increase in revenue[62] - R&D expenses increased by 47.6% to approximately RMB 286,142,000, reflecting higher investment in advanced camera modules and optical products for mobile, IoT, and automotive applications[67] - Employee count increased to 9,396 as of June 30, 2024, up from 7,212 in the same period last year, driven by higher demand for camera modules and fingerprint recognition modules[84] - Employee compensation expenses rose to RMB 508,881,000 for the period, up from RMB 370,497,000 in the same period last year, including performance bonuses, medical insurance, and other benefits[84] Taxation and Government Subsidies - The company benefited from government subsidies totaling RMB 37,692 thousand in the first half of 2024, compared to none in the same period of 2023[22] - Total tax expenses for the six months ended June 30, 2024, were RMB 10.452 million, compared to a tax benefit of RMB 13.477 million for the same period in 2023[29] - The company's subsidiaries in China enjoy a preferential corporate income tax rate of 15% due to their high-tech enterprise status, which has been renewed multiple times, with the latest renewal application submitted in July 2024[30] - The company's subsidiary in Hong Kong is subject to a profits tax rate of 16.5%, with a two-tiered tax system introduced in 2018/2019, where the first HKD 2 million of assessable profits is taxed at 8.25%[31] - The company's subsidiary in Korea is subject to a new Pillar Two global minimum tax, effective from January 1, 2024, but this has not had a significant impact on the consolidated financial statements for the six months ended June 30, 2024[32] Corporate Governance and Compliance - The company did not recommend or pay any interim dividends for the six months ended June 30, 2024, and June 30, 2023[46] - The company granted options to 506 eligible participants to subscribe for a total of 10.28 million ordinary shares on June 5, 2024, with an exercise price of HKD 3.518 per share[48] - The company did not purchase, sell, or redeem any of its listed securities during the period, except as disclosed in the "Major Acquisitions and Disposals" section[86] - All directors confirmed compliance with the Model Code for Securities Transactions during the period[87] - The company adhered to the applicable code provisions of the Corporate Governance Code during the period[88] - The Audit Committee, consisting of three independent non-executive directors, reviewed the unaudited interim results and interim report for the period[89] - The unaudited interim financial report was reviewed by KPMG in accordance with the Hong Kong Standard on Review Engagements 2410[89] - No significant events affecting the group occurred between June 30, 2024, and the date of the announcement[90] - The 2024 interim report will be distributed to shareholders and published on the company's website at an appropriate time[90] - The company expressed gratitude to shareholders, directors, and employees for their continued support and efforts[91] Market and Industry Trends - Global economic growth is expected to stabilize at 2.6% in 2024, with China's growth rate projected at 4.8%, up from the initial forecast of 4.7%[52] - Global smartphone shipments increased by 6.5% YoY in Q2 2024, with China's market growing by 8.9% YoY[53] - China's smartphone market saw a 13.2% YoY increase in shipments in H1 2024, reaching 147 million units[53] - New energy vehicle (NEV) retail sales in China grew by 33.1% YoY in H1 2024, reaching 4.111 million units[54] - The global smartphone market is expected to grow in 2024, with AI-enabled smartphones projected to account for 16% of global shipments, rising to 54% by 2028[58] - The penetration rate of new energy vehicles in China is expected to reach 40% in 2024, with smart driving and autonomous driving entering a rapid development phase[59] - The company's COB (Chip on Board) technology is globally leading, positioning it well for growth in the automotive camera module market[59] Strategic Initiatives and Future Outlook - The company aims to continue advancing large-scale intelligent manufacturing, new technology R&D, and vertical integration to maintain long-term competitiveness[60] - The company is confident in achieving its five-year strategic plan and creating better value for shareholders despite complex macroeconomic conditions[60] - The company continues to monitor liquidity and debt levels to ensure sufficient working capital and maintain a reasonable debt-to-asset ratio[78] - The company did not make any significant investments or acquisitions during the six months ended June 30, 2024, and has no approved plans for major investments or capital asset purchases[80] - The company's subsidiary in India is under investigation by local tax authorities, but no provisions have been made as management believes there are valid grounds to contest the claims[81][82] - Foreign exchange net gains amounted to RMB 39,405,000 for the period, slightly lower than RMB 41,940,000 in the same period last year, with continued use of hedging instruments to manage currency risks[85] - No interim dividend declared for the period (同期：無)[86]

Investment Rating - The report maintains a "Buy" rating for Q-Tech with a target price (TP) raised to HKD 6.47, reflecting a potential upside of 29.6% from the current price of HKD 4.99 [1][2][9]. Core Insights - Q-Tech has announced a positive profit warning for 1H24, projecting a net profit increase of 400-500% year-on-year, reaching between RMB 1.09 billion and RMB 1.3 billion. This aligns with the firm's and market's FY24E estimates of 29-34% and 40-47% growth, respectively [1][9]. - The optimistic outlook is driven by several factors, including increased market share in high-end Camera Module (CCM), growth in automotive and IoT CCM, improved utilization rates (UTR), and better profitability from joint ventures like Newmax [1][9]. - For 2H24E, the report anticipates further growth from the launch of flagship Android models, high-end specification upgrades, and recovery in automotive and IoT CCM segments, which are expected to enhance profitability [1][9]. Financial Summary - Revenue projections for FY24E are set at RMB 17.025 billion, with a year-on-year growth of 35.9%. For FY25E and FY26E, revenues are expected to reach RMB 17.593 billion and RMB 19.503 billion, respectively [2][5][7]. - The net profit for FY24E is projected at RMB 386 million, with significant increases expected in subsequent years, reaching RMB 536 million in FY25E and RMB 657 million in FY26E [2][5][7]. - Earnings per share (EPS) estimates have been revised upward by 2-12% for FY25-26E, reflecting stronger profitability and growth expectations [1][9]. Market Performance - Q-Tech's stock has shown strong performance, with a 1-month return of 41.8% and a 3-month return of 44.6%, indicating positive market sentiment [3]. - The stock's price-to-earnings (P/E) ratio is projected at 14.3x for FY24E and 10.3x for FY25E, suggesting that the stock is attractively valued compared to its earnings growth potential [2][9]. Outlook - The report highlights that the upcoming catalysts for Q-Tech include a recovery in shipment volumes, new product launches, and winning orders in non-smartphone CCM segments, which are expected to drive long-term revenue growth [1][9].

Investment Rating - The report maintains a "BUY" rating for Q-Tech with a new target price (TP) of HK$6.47, up from the previous TP of HK$3.93, indicating a potential upside of 29.6% from the current price of HK$4.99 [5][14]. Core Insights - Q-Tech announced a positive profit alert for 1H24, projecting a net profit growth of 400-500% year-on-year, reaching RMB109-130 million, which aligns with 29-34% and 40-47% of the firm's and consensus FY24 estimates respectively [3][12]. - The growth is attributed to several factors including an increased share of high-end CCM, growth in auto/IoT CCM, rising UTR, and improved profitability from the associate Newmax [3][14]. - The outlook for 2H24 remains positive, driven by flagship model launches, high-end specification upgrades, and recovery in FPM, which are expected to enhance profitability [3][14]. Financial Summary - Revenue for FY24E is projected at RMB17,025 million, with a year-on-year growth of 35.9% [4][12]. - Net profit for FY24E is expected to be RMB386 million, reflecting a significant recovery from previous years [12][19]. - The report anticipates EPS growth of 372.7% for FY24E, with further increases in FY25E and FY26E [4][12]. Earnings Forecasts - The report raises FY25-26E EPS by 2-12% to account for stronger 1H24 earnings and improved gross profit margins [3][14]. - The gross profit margin is expected to recover to 7.5% in FY25E and 7.2% in FY26E, indicating a positive trend in profitability [12][19]. Market Position - Q-Tech is trading at attractive multiples of 14.3x and 10.3x FY24/25E P/E, suggesting a favorable valuation compared to its peers [3][14]. - The company is positioned to benefit from the recovery in the global smartphone market and increasing demand for non-mobile CCM applications, particularly in automotive and IoT sectors [3][14].

Investment Rating - The report maintains a "Buy" rating for the company [4][2]. Core Views - The company is expected to see a significant increase in net profit for 2024H1, with an estimated growth of approximately 400%-500% compared to 2023H1, translating to a net profit of around 108-130 million RMB [1]. - The growth is attributed to improved global smartphone conditions, advancements in automotive and IoT camera module businesses, and a strong push towards high-end products, with 49.2% of camera modules sold being 32M pixels or above [1][2]. - The company anticipates continued high growth in non-mobile camera module shipments, particularly in the automotive sector, with a projected year-on-year growth of over 50% [1]. Financial Summary - Revenue projections for 2024, 2025, and 2026 are estimated at 15 billion, 16.2 billion, and 17.7 billion RMB respectively, reflecting year-on-year growth rates of 19.5%, 8.5%, and 9.0% [2][11]. - The net profit for the same years is projected to be 300 million, 530 million, and 710 million RMB, with year-on-year growth rates of 270%, 75%, and 34% respectively [2][11]. - The company's earnings per share (EPS) is expected to increase from 0.26 RMB in 2024 to 0.60 RMB in 2026 [3][11]. Market Position and Strategy - The company is actively enhancing its product specifications, focusing on high-pixel, optical stabilization, and advanced zoom camera modules, which is expected to improve overall average selling price (ASP) and gross margin [1]. - The company has successfully doubled its shipments of non-mobile camera modules, with significant growth in the automotive and IoT sectors, indicating a robust market opportunity [1][2].

CMB 国际全球市场 | 股票研究 | 公司更新 Q - Tech ( 1478 香港 ) CMBI Corp Day 外卖 : Android 恢复和规范升级推动 ASP / GPM 上升 我们于 6 月 26 日在 CMBI 技术公司日主持了 Q - tech 。主要收获包括 : 1 ) 智能手机 CCM : 管理。 在 Adroid 恢复,更高的 UTR 和更好的产品组合的推动下,FY24E 的 GPM 恢复是积极的 ; 2 ) 非智能 手机 CCM : 由于华为和海外一级客户的订单获胜,汽车 CCM 的加速增长 ; 3 ) FPM : 由于超声波 FPM 的采用增加和 ASP 的增加,利润崩溃在轨道上。总体而言,我们预计高端 Adroid 恢复和规格升级将 在 FY24E 提高 ASP / 收益。FY24 / 25E 市盈率为 11.9 倍 / 8.7 倍,我们认为该股仍然具有吸引力 ( 而 8 年期市盈率为 18 倍。avg) 。在审查 TP 的情况下保持买入。 智能手机 CCM : 由于 Android 恢复 , 高端规格升级和不断上升的 UTR / ASP , GPM 恢 复步入正轨。管理。重申 ...

Investment Rating - The report maintains a BUY rating for the company with a target price under review [2][10]. Core Insights - The company is expected to see a recovery in gross profit margin (GPM) in FY24E driven by the recovery of the Android market, higher unit transaction rates (UTR), and an improved product mix [2]. - Non-smartphone components, particularly automotive and IoT, are anticipated to accelerate growth, contributing to overall revenue increases [10]. - The ultrasonic fingerprint module (FPM) segment is projected to turn profitable in FY24E, supported by rising average selling prices (ASP) and increased shipments [2]. Summary by Relevant Sections Earnings Summary - Management is optimistic about GPM recovery in FY24E, with smartphone CCM shipment growth projected at 5% YoY and high-end CCM sales mix expected to exceed 45% [2]. - Non-smartphone CCM is expected to grow significantly, with the sales mix reaching 12% in FY24E, driven by orders from Huawei and other tier-1 customers [2]. - The FPM segment is on track to achieve profitability, with shipments expected to reach 1 million units per month in 2H24E [2]. Financial Forecasts - Revenue is projected to increase from RMB 12,531 million in FY23A to RMB 14,794 million in FY24E, representing an 18.1% YoY growth [3]. - Net profit is expected to rise significantly from RMB 83.5 million in FY23A to RMB 385.6 million in FY24E, reflecting a 371.8% YoY growth [3]. - The company is trading at a P/E ratio of 11.9x for FY24E, which is attractive compared to its historical average of 18x [2][3]. Valuation - The report emphasizes the attractiveness of the stock at current trading multiples, suggesting potential upside driven by recovery in high-end Android and non-smartphone segments [10]. - The target price is currently under review, indicating ongoing assessment of market conditions and company performance [4].

Product Development and Market Focus - Q Technology reported a focus on mid-to-high end camera and fingerprint recognition modules for intelligent mobile terminals, including smartphones and IoT devices[7]. - The company has developed ultra-thin camera modules with resolutions of 200 mega pixels and above, and is one of the first manufacturers in the PRC to utilize COB and COF technologies[7]. - Q Technology's product range includes dual/multiple camera modules, optical image stabilization (OIS) modules, and various types of fingerprint recognition modules[7]. - The company aims to enhance its capabilities in optical designs, computational imaging, and system integration to become a leader in intelligent vision products[7]. - Q Technology is committed to large-scale intelligent manufacturing and vertical integration to stand out in the fast-growing camera module market[7]. - The company has a strategic focus on research and development of new technologies to drive future growth[7]. - Q Technology's automation equipment includes Automated Optical Inspection (AOI) technology, enhancing production efficiency[7]. - The company is expanding its market presence in smart vehicles and smart home applications[7]. - Q Technology's mission is to "illuminate machines," reflecting its commitment to innovation in intelligent vision technology[7]. Financial Performance - Revenue for 2023 was RMB 12,530,799 thousand, a decrease of 8.95% from RMB 13,759,170 thousand in 2022[12]. - Gross profit for 2023 was RMB 508,856 thousand, down from RMB 541,342 thousand in 2022, resulting in a gross profit margin of 4.1%[12][15]. - Profit for the year was RMB 83,531 thousand, compared to RMB 170,230 thousand in 2022, indicating a significant decline[12]. - Basic and diluted earnings per share for 2023 were both 6.9 RMB cents, down from 14.5 RMB cents in 2022[15]. - Total assets increased to RMB 14,942,750 thousand in 2023 from RMB 12,285,476 thousand in 2022[15]. - Total liabilities rose to RMB 10,110,999 thousand in 2023, up from RMB 7,518,071 thousand in 2022[15]. - The gearing ratio increased to 90.8% in 2023 from 55.4% in 2022, indicating higher financial leverage[15]. Market Trends and Economic Impact - Global smartphone shipment volume in 2023 was approximately 1.17 billion units, a year-on-year decrease of approximately 3.2%, affecting sales of camera modules[25]. - The shipment volume of augmented reality (AR) and virtual reality (VR) headsets was estimated to be 8.1 million units, representing a year-on-year decrease of 8.3%[28]. - China's GDP growth rate for the year was 5.2%, a recovery of 2.2 percentage points from the previous year, but total import and export of goods increased only by 0.2%[25]. - The global economic growth for the year was estimated at approximately 2.9%, lower than the previous year's expectation of 3.4%[25]. Sales and Revenue Insights - The sales volume of camera modules and fingerprint recognition modules applied to mobile phones declined by approximately 12.3% and 1.1% year-on-year, respectively[29]. - The average sales unit price of camera modules increased from approximately RMB 29.63 in the previous year to approximately RMB 30.95, with a significant rise in the second half of the year[31]. - Sales volume of IoT and automotive camera modules increased by approximately 15.4% compared to the previous year, with a significant rise in revenue proportion[32]. - The shipment proportion of mid-to-high-end camera modules reached approximately 41.6%, an increase of 11.6 percentage points from about 30.0% in 2022[31]. Operational Challenges and Adjustments - The Group's investment in an associate continued to operate unsatisfactorily during the year, with losses widening compared to the previous year[29]. - The Group's automotive camera modules business has made significant progress but is still in the investment and market development stage, affecting overall gross profit margin[54]. - The Group recorded a net cash outflow from operating activities of approximately RMB 378,783,000 in 2023, compared to a net cash inflow of approximately RMB 1,048,352,000 in 2022, primarily due to increased outstanding receivables and inventory[72][74]. Corporate Governance and Management - The Board of Directors consists of six members, including three executive directors and three independent non-executive directors[102]. - The company emphasizes legal compliance and risk control in its operations, as highlighted by Mr. Fan's previous roles[105]. - The management team includes professionals with backgrounds in finance, engineering, and technology, enhancing the company's strategic capabilities[109][111]. - The company is committed to maintaining high standards of corporate governance and risk management practices[109]. Share Options and Employee Incentives - The Company granted a total of 89,561,600 share options under the Share Option Scheme to eligible participants during the year[172]. - The Share Option Scheme aims to motivate eligible participants to optimize their performance for the benefit of the Group[174]. - None of the share options granted under the Pre-IPO Share Option Scheme were exercised or lapsed during the year[171]. Environmental and Social Responsibility - The Group has implemented various internal regulations for environmental protection management, including Wastewater and Waste Gas Management Regulations[100]. - The Group's subsidiaries successfully obtained compliance certificates for work safety from local authorities, indicating adherence to environmental protection laws[100]. - The Group made charitable donations of approximately RMB 5,000 during the year[163].

11 Apr 2024 Earnings Summary CMB International Global Markets | Equity Research | Company Update Q-Tech (1478 HK) 1Q24 shipment rebound on track; Auto & IoT as next growth drivers We recently spoke to Q-Tech's mgmt. and we maintain our positive view on high-end Android recovery to drive ASP/shipment upside in FY24E. Q-tech also expected GPM improvement in 1H24E thanks to better product mix and easing competition. For 1Q24, Q-Tech posted impressive growth of 23%/179% YoY in mobile/non-mobile CCM shipment, th ...

Financial Performance - The total revenue for Q Technology (Group) Company Limited for the year ended December 31, 2023, was approximately RMB 12,530,799,000, representing a decrease of about 8.9% compared to the previous year[2]. - The gross profit for the year was approximately RMB 508,856,000, a decrease of about 6.0%, with a gross margin of approximately 4.1% compared to 3.9% in the previous year[2]. - The net profit for the year was approximately RMB 83,531,000, a decrease of about 50.9% from RMB 170,230,000 in the previous year[2]. - Basic and diluted earnings per share for the year were both approximately RMB 0.069, down from RMB 0.145 in the previous year[4]. - The company's revenue from camera module sales in 2023 was RMB 11,561,664 thousand, a decrease of 7.95% from RMB 12,561,468 thousand in 2022[14]. - Revenue from fingerprint recognition module sales in 2023 was RMB 781,215 thousand, down 26.5% from RMB 1,063,578 thousand in 2022[14]. - The company reported a profit of RMB 448,910 thousand for the reporting segments in 2023, compared to RMB 481,727 thousand in 2022, reflecting a decrease of 6.8%[20]. - The company's profit before tax for the year ended December 31, 2023, was RMB 68,133,000, a decrease from RMB 107,084,000 in 2022[30]. - The company's gross profit for the camera module segment in 2023 was RMB 503,409 thousand, compared to RMB 524,798 thousand in 2022, indicating a decline in profitability[19]. - The group's profit for the year was approximately RMB 83,531,000, a decrease of about 50.9% from RMB 170,230,000 in 2022, mainly due to an 8.9% decline in operating revenue[63]. Revenue Breakdown - Total revenue for the company in 2023 was RMB 12,530,799 thousand, a decline of 8.93% compared to RMB 13,759,170 thousand in 2022[14]. - Revenue from external customers in 2023 reached RMB 12,530,799, a decrease of 8.93% compared to RMB 13,759,170 in 2022[22]. - Revenue from the mainland China market was RMB 9,972,395, down 13.78% from RMB 11,569,799 in the previous year[22]. - Sales of camera modules and fingerprint recognition modules for mobile phones decreased by approximately 12.3% and 1.1% year-on-year, respectively[44]. - The sales volume of camera modules for smartphones decreased by approximately 11.9% year-on-year due to a decline in global smartphone sales[2]. Assets and Liabilities - The total assets as of December 31, 2023, were approximately RMB 11,106,689,000, compared to RMB 8,594,138,000 in the previous year[6]. - The net current assets amounted to approximately RMB 1,440,207,000, an increase from RMB 1,344,729,000 in the previous year[6]. - Non-current liabilities totaled approximately RMB 444,517,000, compared to RMB 268,662,000 in the previous year[7]. - The total trade payables increased to RMB 5,437,031,000 in 2023 from RMB 4,584,043,000 in 2022, reflecting a significant rise in liabilities[40]. - The total bank borrowings as of December 31, 2023, amounted to RMB 4,370,999,000, an increase from RMB 2,615,977,000 in 2022[37]. Operational Highlights - The company experienced a significant increase in operating profit to approximately RMB 289,038,000, up from RMB 203,598,000 in the previous year[4]. - The company plans to continue focusing on the design, manufacturing, and sales of camera and fingerprint recognition modules as its primary business lines[18]. - The company aims to increase the sales proportion of camera modules with 32 million pixels and above to over 45% of total sales by 2024, up from approximately 40%[50]. - The company targets a year-on-year sales growth of no less than 50% for camera modules used in automotive and IoT sectors[50]. - The company has diversified its customer base, increasing the number of customers contributing over 10% of revenue from two in 2022 to three in 2023[14]. Market and Economic Outlook - The global smartphone shipment volume in 2023 was approximately 1.17 billion units, marking a year-on-year decline of about 3.2%[43]. - The global smartphone shipment volume is expected to rebound, with a projected 8.5% year-on-year growth in Q4 2023, reaching 326.1 million units[48]. - The high-end smartphone market (priced above $600) saw a market share increase of 3.7 percentage points to 27.4%[48]. - The demand for IoT smart home devices is anticipated to increase, with a projected shipment growth of 6.5% in 2024[48]. - The company aims to leverage opportunities in the AI sector, particularly in machine vision, to enhance the specifications and value of camera modules[48]. Compliance and Governance - The consolidated financial statements are prepared in accordance with all applicable International Financial Reporting Standards (IFRS) and comply with the disclosure requirements of the Hong Kong Stock Exchange[9]. - The company is committed to maintaining high standards of corporate governance and has adhered to the relevant codes throughout the year[81]. - The audit committee, consisting of three independent non-executive directors, has reviewed and agreed on the company's annual performance for the year ending December 31, 2023[82]. Future Plans and Strategies - The company plans to expand its market presence through an initial public offering (IPO) on the Shenzhen Stock Exchange[26]. - The company has implemented a strategy to enhance its product offerings and technological advancements in response to market demands[26]. - The company plans to continue advancing large-scale intelligent manufacturing and new technology research and development to enhance its competitive edge in the smart vision industry[50].

Investment Rating - The report assigns a "Buy" rating to the company with a target price of HKD 3.76, indicating a potential upside of 20% from the current price of HKD 3.13 [1][40]. Core Insights - The global smartphone industry is showing signs of recovery, with a positive growth of 8% year-on-year in Q4 2023, following a prolonged period of decline due to slow technological innovation and extended replacement cycles [4][19]. - The integration of AI technology in smartphones is expected to revolutionize user interaction, creating new market opportunities. Major manufacturers like Samsung and others are already implementing AI features in their products, which is anticipated to drive industry growth [5][20][24]. - The company is focusing on high-end optical modules, which have shown significant revenue elasticity. The shipment of high-resolution camera modules is increasing, with a notable rise in the proportion of modules with 32 million pixels and above [6][33]. Summary by Sections Company Overview - The company, Q Technology (Group) Co., Ltd. (stock code 1478.HK), is a leading manufacturer of mid-to-high-end camera modules and fingerprint recognition modules for smart mobile devices, IoT, and smart automotive applications [14]. Global Smartphone Demand Recovery - The smartphone replacement cycle has extended from 2 years to over 3 years, but the aging of devices is driving an increase in replacement demand. The total global smartphone shipments for 2023 are estimated at 1.14 billion units, with a year-on-year decline of only 4% [4][18][19]. AI Technology Impact - AI is expected to enhance smartphone interaction significantly, with predictions that 5% of smartphone shipments will be AI-enabled by 2024, rising to 45% by 2027. This shift is anticipated to stimulate demand for new devices [5][28]. Company Focus on High-End Camera Modules - The company's camera module shipments for H1 2023 were 167 million units, down 20.8% year-on-year, but are expected to recover in H2 2023 with a smaller decline of 3.2%. The proportion of high-end modules is increasing, reaching 49% in early 2024 [6][32][33]. Financial Forecast and Valuation - Revenue projections for the company from 2023 to 2025 are RMB 12.46 billion (-9.5%), RMB 14.17 billion (+13.7%), and RMB 16.56 billion (+16.9%), with net profits expected to rebound significantly in 2024 [7][38].