Melexis We want to be ahead of the re-rating of automotive semiconductor stocks

Due to the ongoing inventory correction, automotive and industrial chip companies like Melexis are currently under-shipping relative to their end-demand levels. This has led to temporarily depressed sales and gross margins. However, we expect their earnings to rebound into 2H25E and FY26. We anticipate that the stock market will look beyond the current weakness and begin pricing in the higher FY26E earnings levels over the next 4 quarters. Melexis is currently experiencing most of its weakness from European and US customers, rather than from China. We increase our rating from Accumulate to Buy (with a stable € 85 Target Price) as we want to be ahead of the re-rating of automotive semiconductor stocks relative to other chip stocks over the next 12 months as we expect the market to look beyond near-term weakness and start pricing in the next upcycle especially for automotive semiconductor stocks.