Maxscend, a Chinese semiconductor company, reported a 37% YoY revenue growth to RMB2.3 billion in the first half of 2024, largely driven by increased client restocking activities. However, gross profit margin (GPM) dropped to 42.1%, a decrease of 6.9 percentage points compared to the same period last year, primarily due to an unfavorable product mix, increased fab production costs, and heightened competition.
Despite the slow recovery in consumer demand and the extended replacement cycle for handsets, Maxscend is expected to outperform its peers thanks to its unique fab-lite model, which supports supply chain security, improved product performance, and potential for cost optimization when utilization levels increase. This model also allows for more flexibility in managing supply and demand dynamics.
The company's focus on filters has been positively received, as it enhances Maxscend's capability to meet clients' needs for customization and miniaturization, potentially leading to increased market share. Domestic RFFE suppliers are generally facing ASP (average selling price) pressures due to intensifying competition, but Maxscend's increasing coverage of high-end products through its own fabrication capacities mitigates this impact somewhat.
For the fiscal years 2024 and 2025, the forecasted gross margins are projected at 41.9% and 42.2%, respectively, with total earnings per share (EPS) estimated at RMB2.25 and RMB3.29. The target price was adjusted to RMB100, reflecting a trimmed valuation multiple based on the expected P/E ratio of 44.5x for 2025E, which is 1 standard deviation below the 1-year historical average.
Maxscend is considered a key beneficiary of China's semiconductor localization trend, maintaining a "BUY" rating despite the challenges posed by the market. Its fabrication capabilities are seen as a cornerstone for its long-term development.
In terms of financial performance, Maxscend showed strong revenue growth but experienced margin compression due to the aforementioned factors. Gross margin and net margin decreased significantly compared to the previous year, and while the company is expected to perform better than its peers, investors should anticipate near-term pressure on gross margins due to the ongoing price war.
Key performance indicators such as revenue, gross profit, net profit, and earnings per share (EPS) have been revised downward, indicating a negative outlook for the next few years. This revision reflects the impact of longer-than-expected price wars and the consequent pressure on gross margins.
The company's stock performance over the past year shows a decline, with significant losses in absolute and relative terms. The price-to-earnings (P/E) ratio indicates that the market may be undervaluing the company, suggesting potential upside for investors.
In summary, Maxscend faces challenges in maintaining margins and navigating a competitive market, yet its strategic positioning and unique fab-lite model offer opportunities for growth and outperformance against peers. Investors should consider the potential for margin compression and the risks associated with a volatile market environment.
