【行业研究报告】FIT HON TENG-Weak 1Q23 as expected; Expect multiple drivers from iPhone/CPU socket/400G/EV in 2H23E

12May202312May2023CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateFITHonTeng(6088HK)Weak1Q23asexpected;ExpectmultipledriversfromiPhone/CPUsocket/400G/EVin2H23EFITHonTengannounced1Q23resultswithnetlossofUS$9.3mn,in-linewithearlierpreviewandourestimates,mainlyduetoweakseasonalityandUS$5mnexpenseondigitaltransformation.Despitenear-termpressurefordigitalizationandoverseasexpansion,mgmt.maintainedFY23Esales/earningsguidance,andexpectedearningsrecoveryin2H23E,drivenbynewiPhone,400Gmodule,CPUsocketandPrettl’sM&Aintegration.WeslightlyrevisedFY23-25EEPSby1-5%toreflecthigherexpenseforbusinesstransformation.Thestocknowtradesat9.2x/7.5xFY23E/24EP/E.ReiterateBUYwithnewTPofHK$2.18basedonsame11xFY24EP/E.CatalystsincludeM&AandTWSprogress.1Q23draggedbyweakCEdemandandhigherexpense.FIT1Q23resultscameinatrevenueofUS$862mn(-18%YoY)andnetprofitofUS$-9mn,in-linewithitsearlierannouncement.Bysegment,smartphone/networking/computing/EV/systemproductrevenuedeclined20%/44%/19%/12%/0%YoY.Smartphone/computingsufferedfromhighbaseandsoftmarketdemand,whilenetworkingsegmentwasimpactedbyproductoptimization.1Q23earningswasalsodraggedbyadditionalUS$5mnexpenseforFIT’sdigitaltransformation.Overseasexpansionontrack;Multiplegrowthdriverstoemergein2H23E.InadditiontolandpurchaseplaninIndiaasannounced,FITalsoplannedtorentextralandofarea480,000sqminVietnamforglobalmanufacturingexpansion.Despiteshort-termearningspressurein1H23E,webelievenewiPhonelaunch,400Gopticalmodule,newCPUsocketramp-up,MagSafeproductforMRandPrettlM&Aconsolidationwillleadtorevenuerecovery2H23E.Mgmt.alsoguideddouble-digitgrossprofitgrowthdrivenbyimprovedproductmixinFY23E.GlobalmanufacturingexpansionwillallowFITtocaptureopportunitiesinUSmajorclient’sTWSprojectsandexpansioninEVbusiness,whichwillbemajorgrowthdriversinFY24/25E.Attractiverisk/reward;ProductrolloutsandoverseasexpansiontoboostgrowthinFY24/25E.WetrimmedourFY23-15EEPSby1-5%toreflecthigherinvestmentsandexpensesinnearterm.OurnewTPofHK$2.18isbasedonsame11xFY24EP/E(33%below5-yearhist.avg.).Tradingat9.2x/7.5xFY23E/24EP/E,wethinkrisk-rewardremainsattractive.UpcomingcatalystsincludeTWSorderwinsandPrettlM&Aprogress.TargetPriceHK$2.18(PreviousTPHK$2.30)Up/Downside46.5%CurrentPriceHK$1.49ChinaTechnologyAlexNG(852)39000881alexng@cmbi.com.hkLilyYANG,Ph.D(852)39163716lilyyang@cmbi.com.hkClaudiaLIUclaudialiu@cmbi.com.hkStockDataMktCap(HK$mn)10,827.8Avg3mthst/o(HK$mn)15.752wHigh/Low(HK$)2.46/0.92TotalIssuedShares(mn)7267.0Source:FactSetShareholdingStructureFoxconnFarEastLtd71.1%LuSung-Ching5.5%Source:HKExSharePerformanceAbsoluteRelative1-mth-23.2%-20.3%3-mth-29.4%-24.2%6-mth2.8%-9.8%Source:FactSet12-mthPricePerformanceSource:FactSetRelatedReports:1.FITHonTeng(6088HK)–Recentcorrectionoverdone;Investmenttoaccelerate“3+3strategy”transition-16Mar2023(link)2.FITHonTeng(6088HK)–FY22Preview:Strongexecutionof“3+3Strategy”;RaiseTPtoHK$2.66–14Mar2023(link)EarningsSummary(YE31Dec)FY21AFY22AFY23EFY24EFY25ERevenue(US$mn)4,4904,5314,4955,0145,513YoYgrowth(%)4.10.9(0.8)11.59.9Netprofit(US$mn)136.8170.3143.6177.7220.3YoYgrowth(%)221.324.5(15.7)23.823.9EPS(Reported)(US$cents)2.042.422.062.553.16ConsensusEPS(US$)na2.422.462.623.30P/E(x)13.46.69.27.56.0P/B(x)0.80.50.50.50.5Yield(%)0.00.00.00.00.0ROE(%)6.07.25.96.97.9Netgearing(%)nananananaSource:Companydata,Bloomberg,CMBIGMestimates