Luxshare retreated over 10% in the past week mainly due to market concerns on Huawei’s Mate 60 Pro launch and news report on iPhone restrictions by Chinese government and state companies. We view both incidents do not have material impact on iPhone shipment given Mate 60’s limited production capacity and high user stickiness on Apple’s ecosystem. Despite challenging macro headwinds, Luxshare delivered solid sales/NP growth of 20/15% YoY in 1H23, and we are positive on further share gain in Apple’s iPhone/Watch/AirPods OEM/component, robust outlook in auto/comm., and better operating efficiency in 2H23E. We trimmed FY23-25E EPS by 1-6% to reflect lower GPM on mix shift and better growth in auto/comm.. The stock now trades at 18.6x/14.9x FY23/24E P/E (1-sd below 8-yr avg. P/E). Maintain BUY with new TP of RMB44.9 (based on same 28x FY23E P/E). Upcoming catalysts include iPhone 15 launch, Vision Pro ramp-up and auto tier-1 progress.

Solid 2H23 outlook: Apple’s share gain, Vision Pro and strong auto/comm. As the major OEM/component supplier of Apple’s iPhone/ Airpods/Watch, we believe Luxshare will benefit from iPhone 15 cycle in 3Q23 and continue share gain in top module and iPhone assembly in 2H23E. Despite limited contribution from Apple’s Vision Pro in 2H23E, we are positive on gradual share gain in FY24/25E. As we expect auto tier-1 business and communications segment to continue strong growth (40-50% CAGR) and overall profitability will recover in 2H23/FY24E, we forecast earnings will grow 24%/25% YoY in FY23/24E.

1H23 in-line with impressive growth in automotive/communications. Luxshare posted 1H23 revenue/NP growth of 20%/15% YoY, in-line with prior profit alert, and pre-announced 3Q23 earnings growth of 3-27% YoY, which is resilient given near-term weakness in smartphone/CE market (83% of FY23E sales). By segment, CE/computer/auto/communication grew 18% /-5%/52%/68% YoY in 1H23. GPM recovered QoQ to 11.3% in 2Q23 (vs. 10.0% in 1Q23) thanks to continuously improving product mix (auto/comm.). In particular, Luxcase Precision (casing/top module subsidiary) posted revenue/NP growth of 14%/18% YoY in 1H23 and NPM improved to 2.0% in 1H23 (vs 1.8% in 1H22).

Recent noise offers buying opportunity; Reiterate BUY. We suggest investors accumulate the stock after recent correction on market concerns over Mate 60 Pro launch and potential iPhone restriction by Chinese state companies, which have limited impact on iPhone shipment in our view. The stock now trades at 18.6x/14.9x FY23/24E P/E, close to 1-SD below 8-year hist. avg. P/E. Reiterate BUY with new TP of RMB44.9 (28x FY23E P/E).