OmniVision reported 1H25 results. 1H revenue rose 15% YoY to RMB14.0bn, led by double-digit growth in Analog Solutions (+21% YoY) and Distribution (+42% YoY). During the period, gross margin remained stable at 30.5% (+1.3 ppts YoY), while net profit surged by 48% YoY to RMB2.0bn. NPM improved to 14.5% (from 11.3% in 1H24), reflecting operating leverage and cost control. The sales of OV’s core business, CIS, reached a record RMB10.3bn (+11% YoY), with auto, security, emerging IoT, and medical CIS growing 30%, 17%, 249%, and 68% YoY, respectively, offsetting weakness in mobile CIS (-19% YoY). We believe OmniVision is well-positioned in the CIS market, with leading market share in auto CIS, medical CIS, etc. We forecast its revenue to grow at 18%/25% YoY in 2025/26E, while NP to increase by 24%/50% YoY. Maintain BUY with TP of RMB173.

Auto CIS remained a key growth pillar, accounting for 37% of segment sales with revenue of RMB3.8bn (+30% YoY). The growth was fueled by ADAS penetration and cabin imaging demand. With a ~30% global market share (per TechInsights) and tailwinds from China’s “intelligent driving equality” policy, we expect OV’s auto CIS sales to grow at 40% YoY in both 2025E and 2026E.

Mobile CIS faced headwinds in 1H (-19% YoY) due to cyclical demand transition (end-of-cycle demand for OV50H EOL) and slow smartphone recovery in China (domestic shipment grew 3.3% YoY in 1Q25 on government subsidies but decreased 4%/4% YoY/QoQ in 2Q as demand fell). We expect a seasonal pickup in 2H, but project full-year mobile CIS revenue to decline 15% YoY as the headwinds persist (2025 smartphone shipment to grow by a merely 0.6%/1.9% YoY, per IDC/Counterpoint). Growth should resume in 2026E with design-wins in 200MP sensors and new product cycles.

Emerging IoT and Medical CIS showed explosive growth, while security demand gradually recovers. Emerging IoT revenue surged by 249% YoY to RMB1.2bn in 1H25, driven by sports cameras, XR, and machine vision. Medical CIS rose 68% YoY to RMB443mn. Security CIS grew by 17% YoY to RMB827mn, due to rising adoption of its high-end products (Nyxel tech) and market recovery. We expect Emerging IoT and Medical CIS to maintain significant growth at 230%/50% YoY in 2025E.

Maintain BUY with TP of RMB173, based on 33.6x 2026E P/E (in-line with historical 2-year average). Previous TP was RMB176 (41x 2025E P/E). We cut 2025/26E net profit forecasts by 19%/15% on slower mobile CIS ramp and GPM headwinds from mix shift (greater distribution sales contribution). We remain optimistic on OV with 50% YoY profit growth projection for 2026E, considering new mobile CIS product ramp-up and margin improvement. Key risks: Soft smartphone shipments and intensified competition.