Maxscend released its FY24 results. Revenue went up by 2.5% YoY to RMB4.5bn, missing CMBI estimates/BBG consensus by 2%/1%. NP declined significantly by 64.2% YoY to RMB402mn, missing CMBI estimates/BBG consensus by 28%/21%. GPM/NPM declined by 7.0ppt/16.7ppt to 39.5%/9.0% in FY24 (vs. 46.4%/25.6% in FY23) due to margin pressure from subsidiary Xinzhuo’s ramp-up as the company transitions from a fabless model to a fab-lite strategy. We remain constructive on Maxscend’s long-term growth prospects as it builds platform-level manufacturing capability and strategic supply chain independence. However, we maintain HOLD rating as near-term margin pressure persists, with TP adjusted downward to RMB82.0, based on a rolled-over 45x 2026E P/E.

4Q24 experienced net loss for the first time due to fab ramp-up; margin pressure remains an overhang in 2025. In 4Q24, revenue declined by 14.2% YoY but increased by 3.4% QoQ, while bottom-line saw a net loss of RMB24mn. Mgmt. attributed the loss to increased depreciation and high mask costs tied to the migration of key products onto its in-house 6/12-inch lines. NPM was -2.1% in 4Q24 (vs. 6.6%/23.2% in 3Q24/4Q23). We believe Maxscend will face ongoing margin headwinds especially in 1H25 (GPM: 38.0%, on our estimates), given fabs’ ramp-up and slow recovery in end- market demand. We forecast Margin to gradually recover in 2H25 (GPM: 41.7%, on our estimates) on seasonality and emerging demand from AI edge devices. We project overall GPM to be slightly up to 40.2% in FY25E (39.5% in FY24).

Module momentum continues as vertical integration starts to pay off. Module sales (42% of total rev.) grew by 18.6% YoY in FY24, while discrete sales (56% of total rev.) declined by 7.6% YoY. The growth in module revenue reflects the modularization trend in RFFE industry. Looking forward, we expect module business to be the key growth driver (+25% YoY in 2025E). The rise in module shipments reflects Maxscend’s in-house wafer and packaging capabilities, enabling faster product iteration and tighter component integration. Gross margins for module/discrete segments were 36%/42% in FY24, down from 46%/47% in FY23, but are likely to improve as utilization increases, in our view.

Maintain HOLD, with TP adjusted down to RMB82. We view 2025 as a transition year for Maxscend, and we revise down our revenue/NP forecasts by 7%/42% in FY25E, given a slower-than-expected recovery in demand and stronger margin erosion on fab ramp-up. Our new TP is based on 45x 2026E P/E, 10% higher than peers’ avg. of 40.7x considering its leading position in RFFE market and important role in semiconductor localization. Potential upside catalysts: stronger-than-expected recovery and faster semiconductor localization due to geopolitical risks. Potential downside risks: slower-than-expected capacity ramp-up, delay in R&D progress.