Willsemi announced 1Q25 results. Revenue was RMB6.5bn, up 15% YoY and down 5% QoQ on normal seasonality. The growth was largely driven by strong auto CIS demand from the accelerating "smart driving equality" trend. The favourable product mix (higher auto CIS sales) and better supply chain mgmt. improved GPM to 31.0% in 1Q (vs. 29.0%/27.9% in 4Q24/1Q24). NP increased to RMB866mn, up 55% YoY, from a low base in 1Q24, on margin recovery. We expect Willsemi’s revenue to grow sequentially in the following quarters. We maintain our FY25 revenue/NP forecasts at RMB32.1bn/RMB5.1bn, implying 25%/53% growth YoY. Willsemi is one of our top picks. Reiterate BUY with unchanged TP of RMB176.

2025 to be another strong year for Willsemi’s auto CIS business, driven by 1) increasing volume as end market demand is very strong and 2) higher ASP (shifting towards higher resolutions). In 1Q25, auto CIS sales grew 60- 70% YoY, as the adoption of ADAS/AD solutions rapidly expanded in China’s auto market. We project the growth of auto CIS revenue to exceed 50% YoY in 2025 (vs. 30% in 2024). The company is also diversifying auto-related products, with analog products like PMIC securing solid design wins. We project analog sales to grow 30%+ YoY in 2025 (vs. 23% in 2024), riding the tailwind of automotive electrification and "smart driving equality" trends and strengthened partnership with China OEMs (Willsemi’s high-end auto CIS 8MP solutions have covered a broad OEM customer base).

Mobile CIS to achieve better growth in 2H25, benefitted by consistent design wins, new product launches and seasonality effect. We expect Willsemi’s mobile CIS sales to grow modestly at 5% YoY growth this year, largely due to 1) weaker-than-expected demand, and 2) the Company’s new 50MP/+ CIS products (60%+ sales contribution in FY24) are expected to generate revenue in 2H25. We project higher revenue growth of 15% YoY for 2026, driven by 1) rising demand for AI-features and streaming needs, which requires higher resolutions, 2) increasing penetration of domestic premium smartphones, and 3) geopolitical uncertainties lifting domestic supply chain.

Maintain BUY with unchanged TP at RMB176. We slightly revise down FY25 revenue forecast by 1.6%, reflecting lower mobile CIS sales. We lift our GPM projection by 1ppt to 33.1%, on better-than-expected margin recovery and stronger impact from a favourable product mix. NP is unaffected at RMB5.1bn. Our TP is based on the same 41x 2025E P/E, as we believe the company’s strategic focus on the auto sector, alongside its strong presence in the mobile CIS space, will ensure long-term success on the global stage. Potential risks include: rising US-China geopolitical tensions; slower-than- expected product R&D; falling demand, etc.