卓胜微：LT growth intact; D/G to HOLD as the company goes through business model transformation

Investment Rating - The stock is downgraded to HOLD with an adjusted target price of RMB86, based on 45x 2025E P/E [1] Core Views - Maxscend's 3Q24 revenue declined by 23% YoY and 1% QoQ to RMB1.1bn, driven by weak smartphone demand [1] - Net profit dropped by 84% YoY and 55% QoQ to RMB71mn, mainly due to GPM erosion, higher R&D costs, and asset impairment loss [1] - The company is undergoing a business model transformation from fabless to fab-lite, which is expected to weigh on short-term profitability [1] - Long-term growth prospects remain intact, but the stock is downgraded due to short-term challenges [1] Revenue and Profit Analysis - Quarterly sales were flat sequentially (-1%) in 3Q24, showing weak market demand compared to pre-pandemic growth of 40% QoQ in 3Q18/19 and 48% QoQ in 3Q23 [1] - 2024/25E revenue forecasts are revised down by 8%/7%, with FY24/25E revenue growth adjusted to 4.7%/23% YoY [1] - Gross profit margin (GPM) is expected to recover to 40%+ in 2H25, but challenges are expected in the next 2-3 quarters due to capacity ramp-up and slow demand recovery [1] Module Business - Module revenue contribution increased to 43% of sales in 9M24, up from 36% in 2023, and is expected to further increase to 49%/55% in 2024/25E [1] - The modulization trend in the RFFE industry is seen as a key driver of future growth, providing more integrated solutions [1] Financial Projections - 2024E revenue is projected at RMB4,582mn, with a YoY growth of 4.7%, while 2025E revenue is expected to grow by 23% to RMB5,639mn [2] - Net profit for 2024E is estimated at RMB558mn, with a significant recovery expected in 2025E to RMB1,019mn [2] - Gross margin is expected to improve from 40.0% in 2024E to 44.4% in 2026E [2] Valuation and Peers Comparison - The target price of RMB86 corresponds to 45x 2025E P/E, close to the peers' average of ~41x 2025E P/E [1] - Maxscend's 2024E P/E is 87.2x, higher than domestic peers like Vanchip (45.6x) and GigaDevice (51.9x) [10] Industry Trends - The RFFE industry is moving towards modulization, which is expected to benefit companies like Maxscend that are increasing their module business share [1]