Intron Tech (1760 HK) | 1H23E Preview: strong growth despite industry headwinds; expect back-loaded in 2H23E

Intron Tech will announce its 1H23 results next week. We estimate 1H23E revenue of RMB 2.66bn (+28% YoY) and net income of RMB 191mn (+25% YoY). The solid growth was mainly due to strong NEV shipment and rising penetration of auto electrification/intelligence, partly offset by OEM price pressure, weaker cloud server and higher R&D expenses. Looking ahead, we expect a back-loaded 2H23E driven by seasonality, new product ramps and better operating leverage. We slightly trimmed FY23-25E EPS by 4-7% to factor in slower traditional business and higher R&D expenses. Trading at 8.2x/6.0x FY23/24E P/E, we think the risk-reward is very attractive compared with A/H share peers. Maintain BUY with new TP of HK$ 7.01. Upcoming catalysts include rising ADAS penetration and NEV client share gain.

1. 1H23E preview: solid growth despite challenging market condition. We estimate 1H23E revenue RMB 2.66bn (+28% YoY) and net income of RMB 191mn (+25% YoY). By segment, we expect revenue from new energy/ body control/ safety/ powertrain/ automation & connectivity to deliver 55%/ 25%/ 25%/ 30%/ 100% YoY while cloud server declined 60% YoY, given NEV client share gain, ADAS penetration and new product ramp, slightly offset by cloud server business weakness from key customers. We expect 1H23E GPM to remain largely flattish at 21.0%, despite price pressure from downstream OEM customers.

2. Outlook: expect back-loaded 2H23E and moderate downstream price competition. We expect Intron’s topline to be back-loaded in 2H23E driven by traditional seasonality and new product ramp, and we expect moderate impact from downstream auto OEM price competition and de-spec trend. With cost-plus pricing strategy and economies of scale of R&D resources, we believe Intron will continue to deliver stronger-than-industry growth backed by market share gain, design wins and robust product pipeline. Overall, we estimate revenue/net profit growth of 45%/40% YoY in 2H23E.

3. Attractive risk/reward, reiterate BUY. We trimmed FY23-25E EPS by 4- 7% mainly to reflect higher R&D expenses and slower traditional business. Our new TP of HK$7.01 is based on same 12x FY23E P/E (24% below 5- year hist. avg.). Trading at 8.2x/6.0x FY23/24E P/E, we think risk-reward is attractive especially compared with A/H share peers. Catalysts include rising ADAS penetration and share gain in NEV clients.