CICC: Maintain outperform industry rating on Q TECH (01478), lowering target price to 12.1 Hong Kong dollars.

CICC released a research report stating that, considering the adverse impact of storage on the shipment volume of smartphones, it lowered Q TECH (01478)'s net profit attributable to parent company for the years 2026 and 2027 by 11% and 13% to 0.85 billion and 1.05 billion yuan. The current stock price corresponds to a P/E ratio of 10.5 times and 8.3 times for 2026 and 2027. It maintained an outperform rating, taking into account the downward shift in profit forecasts and industry valuations, and lowered the target price by 19% to 12.1 Hong Kong dollars, corresponding to P/E ratios of 15 times and 12 times for 2026 and 2027, representing a 44% increase over the current stock price. Key points of CICC's view are as follows: Performance in 2025 meets the bank's and market expectations Q TECH released its 2025 report: with annual revenue of 20.88 billion yuan, an increase of 29% year-on-year; gross profit margin of 7.8%, an increase of 1.7 percentage points year-on-year; and net profit attributable to parent company of 1.49 billion yuan, an increase of 435% year-on-year, falling within the company's forecast range and meeting the bank's and market expectations. The bank believes the main reason for the high profit growth is: 1) the sale of part of the equity of an Indian titanium subsidiary recorded a net income of 810 million yuan after tax, with a net profit attributable to parent company of 680 million yuan after deduction, an increase of 144% year-on-year; 2) revenue from non-smartphone CCM such as automotive and IoT increased by 171% year-on-year; 3) the proportion of high value-added products such as non-smartphone CCM, periscope CCM, and ultrasound FPM increased, driving the comprehensive gross profit margin to increase by 1.7 percentage points year-on-year. Non-smartphone products are the main growth engine, contributing to over half of the goals in the 2025 plan In 2025, the company's revenue from non-smartphone CCM accounted for approximately 26.9% of total CCM revenue, exceeding the goal of 25% set in the 2015 plan. This was mainly due to strong demand and market share increases in drones, handheld filming devices, and breakthroughs in automotive CCM sales. In addition, the company continues to expand into various products such as intelligent glasses, XR, body intelligence CCM, laser radar, Pancake, and optical machines. According to the company's 2026-2030 plan, the revenue target for non-smartphone products accounts for over 50% of total CCM revenue. The bank believes that the company's rich product portfolio and deep component technology accumulation are expected to drive rapid growth in revenue from non-smartphone products, while benefiting from economies of scale, the profitability of non-smartphone products is expected to continue to improve. Optimization of the structure of smartphone products and increase in market share, with stable sales guidance for 2026 In 2025, the proportion of sales of high-end smartphone products by the company continued to increase, with sales of periscope CCM increasing by 256% year-on-year, and ultrasound FPM sales increasing by 389% year-on-year, far exceeding the overall growth rate. At the same time, according to the announcement, the company's supply share to overseas customers continued to increase. The bank believes that this reflects the enhancement of the company's technological strength and customer recognition. Looking ahead to 2026, the bank predicts that the demand for smartphones in the market might come under pressure due to the increase in storage prices, but the company's sales performance is expected to outperform the industry due to the increase in overseas customer share. Risk warning: Smartphone demand is lower than expected; IoT demand is lower than expected; expansion of automotive customers is lower than expected.