Goertek’s 1H24 revenue/ net profit growth of -11%/+190% YoY was largely in- line with its earlier positive profit alert (net profit +180-200% YoY). 2Q24 revenue/net profit delivered +0.1%/+168% YoY, and GPM came in at 13.6% (+4.4 ppts QoQ/5.9 ppts YoY), mainly due to improving efficiency and better acoustics product/smart product profitability. Looking ahead to 2H24/FY25E, we expect Goertek’s earnings will continue to rebound given improving GPM and better AR/VR/gaming demand with multiple product launches from major VR/AR players. We raise FY24-26E EPS by 19-38% to reflect 1H24 results, a stronger GPM and better operating leverage. In longer term, we believe Goertek is well positioned to capture opportunities in the AR/VR product cycle from players such as Meta, Sony, Google, Samsung and Huawei. Maintain BUY with new TP of RMB25.9, based on rollover 25x FY25E P/E (prior 25x FY24E P/E).

1H24 in-line with profit alert, impressive GPM across all segments. Goertek’s1H24 revenue/attributable net profit growth of -11%/+190% YoY was largely in-line with its positive profit alert. Strong revenue growth in precision components and acoustic products segments (+21%/+38% YoY) was partly offset by smart product weakness (-32% YoY), due to the late product cycle of Sony gaming console/VR and Meta Quest 3. 2Q GPM came in at 13.6% (+4.4 ppts QoQ/5.9 ppts YoY), mainly due to improving efficiency and better acoustics product/smart product profitability.

2H24/25 outlook: Expect continued GPM recovery; positive on “AI+XR” trend in 2H24E. In addition to solid recovery of acoustic product segment, we believe Goertek is well positioned to benefit from new product launches of Meta Quest 3S and Sony PS5 Pro gaming console in 2H24E, along with AR glass product launches from multiple players, which should continue to drive profitability recovery and topline growth. Overall, we expect Goertek’s net profit to grow +164%/23% YoY in FY24/25E.

Maintain BUY. We think Goertek’s industry leadership and product roadmap in XR/acoustics/gaming segments will allow it to benefit from industry recovery and the upcoming new XR/gaming console product cycle in FY24/25E. We lift our FY24/25E EPS estimates by 19-38% mainly for better GPM and operating efficiency. Our new TP of RMB25.9 is based on a rolled- over 25x FY25E P/E (vs prior 25x FY24E P/E). Maintain BUY. Upcoming catalysts include new XR/gaming product launches and continued margin recovery.