Q-Tech (1478 HK, HK$13.54, HK$16.1bn) Strong profit growth and bright outlook

Camera Modules (CCM): Premiumization and growth from non-smartphone -  1H25 CCM revenue reached RMB7.96bn, +10.3% YoY, and +4.63% QoQ, showing sustained growth momentum. The increase was supported by the increasing proportion of ≥32MP CCMs and a significant surge in shipments of CCMs applied in other fields:

1). Shipments of ≥32MP CCMs accounted for 53.3% of total smartphone CCMs, + 55bps YoY, approaching the annual target of 55%. Specifically, shipments of periscope camera modules (with ASP reaching RMB100) grew to approximately 10.6mn units, a spike of 5.9 times YoY. These high-value products have emerged as a key driver behind ASP growth.

2). CCM for other fields (Auto/IoT) shipments rose 47.9% YoY (exceed the annual target of 40% growth), accounting for 4.2% of total shipments (vs. 2.5% in 1H24), becoming a key growth supplement. Although the shipment only accounted for 4.2% of total shipments, their corresponding sales revenue represented 23.9% of total CCM revenue, with +14.3% YoY and +8.5% QoQ growth. In addition, Q-tech has partnered with 7 global Tier-1 intelligent driving solution providers and obtained qualifications for 37 brands. Three new partners were added compared to the end of 2024, with 5 new projects secured. Notably, Q-tech has established partnerships with leading players such as Huawei, DJI, and Vivo.

Overall, bolstered by ongoing refinement of the camera module product portfolio, the ASP has risen to RMB41.5, up 16.1% QoQ and 27.2% YoY.

Fingerprint Recognition Modules: Ultrasonic Products Fuel Explosive Growth - 1H25 fingerprint module shipments hit 94mn units, +59.7% YoY, with revenue rising 109% YoY to RMB826mn. The key driver was product mix upgrade: under-display optical and ultrasonic modules accounted for 66.9% of shipments, with ultrasonic modules surging 33.62x YoY and capturing a significant market share. Their high recognition accuracy and adaptability drove rapid penetration in premium phones. A significant surge in volume has driven an improvement in capacity utilization compared to the same period, further enhancing the gross profit margin of this business segment.

GPM Improvement and Significant Surge in Net Profit: GPM rose 2.2 ppts YoY to 7.4% (vs. 5.2% in 1H24), driven by higher share of ≥32MP CCMs lifting product value; non-smartphone CCMs with higher GPM and lower unit costs for fingerprint modules due to scale. Meanwhile, Xinju Technology, a 41.8% owned associate, has turned profitable, contributing about RMB48mn of profit. Overall, the net profit surged significantly to RMB308mn, representing a 168% YoY increase, with the ROE reaching 5.9%, + 36bps YoY. Additionally, operating cash flow increased substantially to RMB2.18bn, up from RMB330mn last year, the company is announcing its first-ever interim dividend, with a payout of HK$0.15 per share.

Management guidance: Growth will come from multiple segments such as the rising penetration of AI-powered smartphones spurring upgrades in camera modules (OIS and periscope camera); new automotive LiDAR orders secured; rapid growth in the drone and hand-held shot devices and the gaining of ultra-sound FPMs.  The Mgt guides for at least 60% YoY growth in the shipments of cameras in non-smartphone segments such as automotive and IoT; fingerprint recognition module shipments will rise by no less than 30% YoY; and the proportion of ≥32MP CCM shipments will increase to 55% at the end of 2025.

Our views: Q-Tech's 1H25 net profit surged 168% YoY, largely in line with the profit alert, driven by revenue growth and a rising mix of high-end products. Despite a slowdown in global smartphone shipments, its core businesses benefit from growing AI phone penetration, rising demand for OIS and periscope cameras, and rapid growth in IoT and automotive LiDAR. With strong product competitiveness, we believe double-digit revenue growth ahead, with margin expansion from high-end product optimization and ASP gains boosting net profit. The company is actively deepening cooperation with and aims to become a "strategic partnership," solidifying its market position for long-term growth. The counter is trading at 20x FY25E P/E. (Research Department)