韦尔股份（603501）研报：Solid 1H24 results with continued recovery in CIS business

    Willsemi (ticker: 603501 CH) reported solid first half of 2024 (1H24) results, with revenue increasing by 36.5% year-over-year (YoY) to RMB12 billion and net profit surging 790% YoY to RMB1.37 billion from a low base in 1H23. In the second quarter of 2024 (2Q24), the company achieved record revenue of RMB6.4 billion (up 42.5% YoY and 14.2% quarter-over-quarter (QoQ)), in line with consensus estimates. Q2 net profit reached RMB809 million, up 45.1% QoQ (2Q23 was in net loss). Gross profit margin (GPM) improved to 30.2% in Q2 from 27.9% in 1Q24 and 17.3% in 2Q23, indicating steady recovery. Net profit margin (NPM) expanded to 12.6% in 2Q24 from 9.9% in 1Q24 and negative 1% in 2Q23, thanks to a better cost structure. The management attributed these results to the steady recovery of consumer sentiment in 1H24, growing adoption of Willsemi’s products in the high-end smartphone market (especially in domestic Android models) and strong growth in automotive CMOS image sensors (CIS), along with an improving GPM due to a favorable product mix. The company maintains a BUY rating with a target price (TP) adjusted to RMB115.39, based on a 40.7x 2024 estimated price-to-earnings (P/E) ratio.

    CIS sales continued to show strong growth momentum in 1H24 (up 49.8% YoY), despite a slight sequential decline of 0.1%. Mobile, automotive, IoT, and medical CIS segments grew 78.5%, 53.0%, 77.8%, and 41.6% YoY, respectively, while security and notebook CIS declined 26.7% and 9.0% YoY. Despite no broad recovery of end-market demand, Willsemi’s CIS sales for mobile, automotive, IoT, and medical applications delivered resilient growth, driven by share gains in the domestic high-end Android market, increasing demand for advanced driver assistance systems (ADAS) and in-cabin cameras to meet autonomous driving and security needs, the trend towards industrial automation, and inventory restocking behaviors. We expect CIS sales to grow another 15% sequentially in the second half of 2024 (2H24), implying 29% YoY growth in 2024. We project segment revenue to grow 21% and 18% YoY in 2025 and 2026, respectively.

    The touch/display business remained weak, with revenue decreasing 28.6% YoY, due to ongoing inventory digestion and average selling price (ASP) pressure. However, the analog segment showed signs of recovery, with sales up 24.7% YoY on improving market conditions and share gains. We expect the touch/display segment to recover in 2025, driven by the introduction of low power-consumption and automotive-grade products. Analog sales are forecasted to grow at a double-digit rate on better market conditions and share increases.

    The company maintains a BUY rating with a slightly adjusted target price of RMB115.39, based on a 40.7x 2024E P/E, which is one standard deviation (SD) above the one-year historical average forward P/E, considering Willsemi’s leading market position and continuous share gains. We revise net profit (NP) forecasts for 2024 and 2025 by -1% and +3%, respectively, due to higher research and development (R&D) costs as the company plans to ramp up new products and enhance its competitiveness. Key risks include slower-than-expected end-market demand recovery and intensified competition.