<News Alert> Profit warning: FY23 earnings to fall 35-40% y-o-y, missing market expectations by 29-35%
- 2023 earnings are expected to drop c.35-40% y-o-y, implying an earnings rebounds by 19-21 times y-o-y in 2H23, both missing the market expectations
- The disappointment performance mainly stems from lower-than-expected gross margin arising from a weak Rmb and lower utilisation rate
- We expect a gross margin improvement and rebounds in earnings in 2024, supported by the continued resurgence of global smartphone demand since 4Q23. Maintain BUY
Expect short-term share price reaction as earnings miss expectations. Q Tech issued its profit warning yesterday after market close. The company expects 2023 profit to drop by c.35-40% y-o-y, i.e., by Rmb111-103m, missing market expectations by 29-35%. The guidance implied 2H23 earnings would rebound 19-21 times y-o-y, reaching Rmb94-82m, missing the market expectations by 15-23%. The disappointing performance is mainly due to the lower-than-expected gross margin arising from a weak Rmb and lower utilisation rate.
Strong 4Q23 global smartphone shipment bode well for an earnings rebound in 2024. Global smartphone shipments strongly rebounded 8.5% y-o-y in 4Q23, mainly driven by robust sales of the iPhone and Xiaomi 14 and Huawei’s return to the premium phone market. However, exchange rate volatility and a lower utilisation rate undermined the benefit of an increased contribution from the recovery of CCM shipments in 2H23. We foresee a recovery in the gross margin and an earnings rebound for Q Tech in 2024, supported by (1) an increase in its production scale, underpinned by a sustainable recovery of global smartphone shipments, and (2) the specification upgrade of optical components, supported by the premiumisation trend. We maintain a BUY rating on the counter with TP under review.