Wingtech announced its preliminary FY24 results. The company expects a net loss to be around RMB3.5-4.55bn (vs. RMB1.1bn NP in FY23). Mgmt. attributed the NL primarily to 1) impairment related to the sale of ODM business announced in Dec (link), 2) a write-down on deferred tax assets, and 3) further goodwill impairments (RMB600mn/RMB500mn in 2022/23, with RMB200mn to be fully impaired in 2024). Despite short-term financial setbacks, we believe Wingtech is better-positioned for LT value creation as it moves forward with a lighter load as it transforms itself to a predominately semiconductor-focused company. MaintainBUY with TP unchanged at RMB52.

Net loss in FY24 due to one-off impairments from ODM spin-off. PerCounterpoint, the top three ODM players (Longcheer, Huaqin, Wingtech) accounted for 75% of total market in 1H24 in China. Wingtech ranked third with 17% share, down 3ppts vs. 1H23. Despite a challenging 1H24, its ODM business continued to improve in 4Q (after +46%/15% YoY/QoQ in 3Q), with a record revenue (est. double-digit YoY and single-digit QoQ). Excluding the impairments (ODM business spin-off, write-down on DTA, and goodwill), the segment turned profitable in 4Q as mgmt. expected. However, ODM is a low- margin business, with the top three ODM players in China seeing <3% NPM on average in 9M24. We see No.2 player Huaqin (603296 CH, NR) is actively diversifying its business portfolio towards higher-margin opportunities (recently acquired 75% of HCTRobot). We believe Wingtech is better- positioned now as it moves forward with a lighter load.

Semi business continued to show resilience amid seasonal slowdown.

Semi business revenue grew sequentially in FY24 (2Q/3Q: 10/15% QoQ).

While 4Q24 sales faced seasonal softness, the business still recorded single- digit YoY (~7%) and flattish QoQ growth, driven by strong demand in consumer, data center, and auto sectors. Notably, China contributed ~40% of total semi revenue, offsetting weakness overseas resulting from continued inventory correction. 4Q GPM was near 2Q level (1Q/2Q/3Q: 31.0%/ 38.7%/40.5%). Mgmt. expects overseas auto OEMs to resume restocking in 2025, with auto revenue currently accounting for 60% of total semi revenue.

Looking forward, we expect to see more upside in Wingtech’s valuation,lifted by 1) increasing semiconductor revenue share, 2) robust domestic auto demand with gradual recovery overseas, and 3) a re-rating opportunity given its business transformation to being a semi-centric company. Maintain BUY,with TP unchanged at RMB52, corresponding to 24.8x FY25E P/E, basedon unchanged financial forecasts. Potential risks include heightened US- China trade relations, unfavourable exchange rates, and weaker-than- expected overseas auto inventory correction.