CICC has released a research report adjusting its forecasts for Q TECH (01478). Considering the adverse impact of memory price increases on smartphone shipments, the firm has lowered its estimates for Q TECH's net profit attributable to shareholders for 2026 and 2027 by 11% and 13%, respectively, to 850 million yuan and 1.05 billion yuan. The current share price implies a P/E ratio of 10.5x for 2026 and 8.3x for 2027. CICC maintains its Outperform rating on the stock. However, incorporating the revised earnings forecasts and a downward shift in industry valuation benchmarks, the bank has reduced its target price by 19% to HK$12.1. This new target implies P/E ratios of 15x for 2026 and 12x for 2027, representing a potential 44% upside from the current share price. CICC's key views are as follows:
The company's 2025 results aligned with CICC's and market expectations. Q TECH reported annual revenue of 20.88 billion yuan, a 29% year-on-year increase. The gross profit margin was 7.8%, up 1.7 percentage points year-on-year. Net profit attributable to shareholders reached 1.49 billion yuan, surging 435% year-on-year, landing at the midpoint of the company's guidance and meeting expectations. CICC attributes the significant profit growth primarily to three factors: 1) a post-tax gain of 810 million yuan from the partial divestment of its Indian subsidiary; excluding this, net profit was 680 million yuan, still up 144% year-on-year; 2) a 171% year-on-year increase in revenue from non-smartphone camera modules (CCM), particularly for automotive and IoT applications; and 3) an increased contribution from higher-value-added products such as non-smartphone CCMs, periscope CCMs, and ultrasonic fingerprint modules (FPMs), which drove the overall gross margin up by 1.7 percentage points.
Non-smartphone products are the primary growth engine and are projected to contribute over half of the revenue target under the new five-year plan. In 2025, non-smartphone CCMs accounted for approximately 26.9% of total CCM revenue, exceeding the target set in the previous five-year plan (25%). This was mainly driven by robust demand and increased market share in drones and handheld imaging devices, alongside sales breakthroughs in automotive CCMs. Furthermore, the company continues to expand its product portfolio in areas such as CCMs for smart glasses, XR, and embodied AI, as well as LiDAR, Pancake lenses, and optical engines. According to the company's second five-year plan (2026-2030), the revenue target for non-smartphone products is set to exceed 50% of total CCM revenue. CICC believes that Q TECH's diverse product lineup and deep expertise in component technology are likely to fuel rapid growth in non-smartphone revenue. Additionally, benefiting from economies of scale, the profitability of these non-smartphone products is expected to improve continuously.
The company is optimizing its smartphone product mix and gaining market share, with stable shipment guidance for 2026. In 2025, the proportion of high-end smartphone products increased further. Sales of periscope CCMs surged 256% year-on-year, while sales of ultrasonic FPMs jumped 389% year-on-year, significantly outpacing the overall growth rate. Furthermore, according to company announcements, Q TECH has been steadily increasing its supply share with overseas clients. CICC views these developments as evidence of the company's enhanced technological capabilities and greater customer recognition. Looking ahead to 2026, CICC anticipates smartphone market demand may face pressure due to rising memory costs. However, bolstered by its increasing share with overseas customers, the company's shipment performance is expected to outperform the broader industry.
Risk factors include smartphone demand falling short of expectations; IoT demand falling short of expectations; and slower-than-expected expansion in automotive customers.
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