Maxscend released its FY25 results. Revenue declined by 17% to RMB3.7bn (9% below BBG consensus and ours), while net loss was RMB293mn. GPM declined by 13.8ppts to 25.7% (1ppt below BBG consensus/6ppts below ours) due to 1) low utilization rates at both 6-inch (~50%) and 12-inch (30-40%) fabs, 2) an unfavorable product mix due to the delay in higher-margin module ramp and a greater contribution from lower-value products, and 3) increased raw material costs driven by AI-related demand crowding. More fundamentally, the Company remains in a transition phase toward a fab-lite model with elevated depreciation and ramp inefficiencies continuing to pressure near-term earnings. Maintain HOLD on the Company with TP revised to RMB91, corresponding to 45x 2027E EV/EBITDA (rolled forward from 45x 2026E) to reflect the delayed pace of margin normalization and earnings recovery. We lower our sales forecast for 2026/27E by 24%/27%, and GPM by 8.7ppts/8.2ppts, reflecting intensified market competition and low fab utilization.

Revenue mix gradually improving on L-PAMiD ramp, though still below potential. We view L-PAMiD as the key driver of medium-term recovery, given its successful entry into domestic tier-1 supply chains and clear advantages in cost, size, and integration via bare-die packaging. In FY25, RF module mix increased to 45% (from 42% in FY24), although absolute revenue declined 11% YoY due to delayed ramp and supply constraints earlier in the year. Meanwhile, RF discrete revenue mix fell to 52% (from 56%), with revenue declining ~22% YoY, reflecting both weaker end demand and pricing pressure in more commoditized segments. We expect mix to continue improving into 2026 on the back of L-PAMiD ramp and increasing contribution from high-integration modules.

1Q26 earnings showed early signs of stabilization, but margin pressure persists. Revenue grew 9% YoY to RMB828mn but declined 14% QoQ due to seasonality, while GPM fell to 18.5% (vs. 31% in 1Q25 and 22.8% in 4Q25) in 1Q26, reflecting continued low utilization, elevated depreciation, and ongoing pricing pressure as the Company prioritizes share gains. We expect revenue to gradually recover through 2026 on LPAMiD ramp, but margin recovery will likely lag, with meaningful improvement contingent on utilization ramp and higher contribution from customized higher-value modules.

12-inch Xinzhuo fab a long-term strategic asset with limited near-term catalysts. The fab has reached stable mass production with competitive yields and supports key processes such as SOI (silicon on insulator) and heterogeneous integration, enabling internalization of high-value modules. While low utilization continues to weigh on margins, we see it driving longterm competitiveness and potential margin upside, with earnings contribution dependent on utilization ramp.

Maintain HOLD with TP revised to RMB91, corresponding to rollover 2027E EV/EBITDA of 45x (prev. 45x 2026E EV/EBITDA) as we expect sales to stabilize on L-PAMiD ramp while profitability remains constrained by low utilization and elevated depreciation, both of which are unlikely to materially improve within 2026. However, we think the Company deserves a premium to peers due to its unique positioning as a vertically integrated, full-stack RFFE player while most other peers remain fabless or partially integrated. Upside risks: Improving end market demand, raw material price reduction, etc.; downside risks: Worsening end market demand, R&D challenges, etc.