Willsemi reported 3Q24 results, and we attended its earnings call. The company achieved a record quarterly revenue of RMB6.8bn (up 9.5% YoY/5.7% QoQ), 2%/4% lower than our estimate/consensus. Mgmt. attributed the growth to consumer demand recovery, increasing product penetration in high-end smartphone market and autonomous driving applications. GPM remained stable at 30.4% in 3Q (vs. 30.2% in 2Q24), suggesting the business has been recovered from the cycle trough (GPM was up 8.6ppts from 3Q23). NP was RMB1.0bn (up 368.3% YoY/24.6% QoQ), in line with our estimate and 2% higher than consensus. The growth was mainly due to 1) a low base in 3Q23 (RMB0.2bn), 2) favourable product mix and 3) cost control. NPM steadily improved to 14.8% in 3Q24 vs. 3.5%/12.6% in 3Q24/2Q24. Maintain BUY, with adjusted TP to RMB130, corresponding to 32x 2025E P/E (vs. prev. 40.7x).

Auto CIS will be the key growth driver. Mgmt. highlighted the growing opportunities in auto CIS market from 1) increasing number of cameras per vehicle (~11 cameras for EVs of RMB100k-150k vs. 4-5 previously) and 2) upgrades to higher resolution cameras (3M-8M vs. 1M previously). Benefiting from growing demand and higher ASP (3M/8M vs. 1M: ~1.4x/2x), Willsemi is well-positioned to ride the industry tailwind (a top two leader) as more EVs integrate multiple higher resolution cameras for ADAS and in-cabin functions supporting autonomous driving. We lift our forecasts for Willsemi’s auto CIS sales growth for 2025/26E to 35%/25% vs. 20%/14%.

Smartphone CIS to grow on share gains. The company will have a series of new product offerings in 2H25, such as 200M/0.6μm pixel, 50MP/1.0μm pixel and 50MP/1.6μm pixel products. We believe the broader product offering should enhance Willsemi’s competitiveness in smartphone CIS market and therefore increase its market share. Mgmt. emphasized their strength in high- end products and the advantage with a broad set of self-design abilities.

Improvement of Touch/Display business to lift future margins. Mgmt. said their TDDI product offering has expanded to 4-5 categories vs. previous single category. Mgmt. expects the segment profitability to improve in the following years, with continuous cost control and IP accumulations.

Maintain BUY with TP adjusted to RMB130, based on ~32x 2025E P/E, which is close to historical 1-year forward P/E. We maintain our forecasts for 2024 EPS and revise up 2025/26E estimates by 4%/5% on higher auto CIS sales projections. Key risks include weaker-than-expected demand recovery, intensified competition and heightened China-U.S. trade tensions.