【行业研究报告】FIT HON TENG-NDR takeaways: Opportunities in US$1.7bn server connector/cable market; Lift TP to HK$2.42

26Mar202426Mar2024CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateFITHonTeng(6088HK)NDRtakeaways:OpportunitiesinUS$1.7bnserverconnector/cablemarket;LiftTPtoHK$2.42MaintainBUYandraiseTPtoHK$2.42toreflectstrongerdemandofnext-genhigh-speedconnectivityinAIserversinFY24/25E,backedbyMCIOconnectors/cablesandhigh-speedI/Oproducts,recentlaunchof224Ghigh-speedproductsatDesignCon(link),andcollaborationwithMediaTekforhigh-speedconnectivitysolutionsinCPOsocketsatOFC(link).DuringourNDRlastweek,mgmt.waspositiveonrisingcopperconnectivitytrendinAIserversandexpected1)15-20%YoYfornetworking/serverinFY24E(30-40%GPM),and2)AIserverrelatedrevenue(mainlycopper)toreach8-10%FY24Esales(vs.1%inFY23),backedbynewcopperproductsandhigh-speedconnectionproductsinAIserver.WeliftedFY24-25EPSby9-10%toreflectstrongerdemandofAI-relatedproductsandsharegainfromtheUSpeers(Amphenol,TEL,Molex)inglobalserverconnectormarketfollowingmassproductionofnewAIproductsinFY24/25E.PoisedtobenefitfromAIservercopperconnectivitytrends.Asaglobalserverconnectorleader(alongwithAmphenol,TELandMolex),duringourNDRlastweek,FITmgmt.ispositiveonthetrendofhigh-speedcopperconnectivityinNvidia’sGB200NVL72,whichuses5,000coppercables(over2miles)forintra-rankconnectionsforbetterreliabilityandcost/powerefficiency.LeveragingcollaborationwithFoxconnGroupandkeyODM/CSPplayersforNvidiaproducts,FITguided15-20%YoYgrowthfornetworking/serversegment,andAI-relatedproducts(mainlycopper)willreach8-10%ofFY24Esales(vs1%inFY23),drivenbynewcopperproductslaunchedin4Q23and2H24EmassproductionofMCIOconnectors/cablesandhigh-speedI/OsuchasEDSFFandGen-Zconnectors.Serverconnector&cablemarketTAMtoreachUS$1.7bnin2025.Mgmt.estimatedglobalserverconnector&cablemarketTAMofUS$1.7bnin2025,andweexpectFITtocapture20-30%marketshare,reachingUS$500mnsalesinFY25E.Overall,weexpectFIT’snetprofittogrow55%/27%YoYinFY24/25E,backedbyAIserverconnectivityproductramp-up,AirPodssharegainandVoltairaautobusinessconsolidation.Expectmorecatalystsinnearterm;RaiseTPtoHK$2.42.FIT’sstocksurged53%sinceourlastTPupgradeon14Mar(report),drivenbyupbeatFY24guidanceandopportunitiesofwithin-rackcopperconnectivityinNVIDIA’sGB200NVL72systematGTC2024.Tradingat9.2x/7.2xFY24/25P/E(vs15xhist.avg.P/E),wethinkthevaluationisattractive.ReiterateBUYwithnewTPofHK$2.42,basedonsame11xFY24EP/E.Near-termcatalystsincludeAIserverproductlaunchandAirPodsshipment.TargetPriceHK$2.42(PreviousTPHK$2.21)Up/Downside19.3%CurrentPriceHK$2.03ChinaTechnologyAlexNG(852)39000881alexng@cmbi.com.hkClaudiaLIUclaudialiu@cmbi.com.hkStockDataMktCap(HK$mn)14,752.0Avg3mthst/o(HK$mn)12.252wHigh/Low(HK$)2.16/0.90TotalIssuedShares(mn)7267.0Source:FactSetShareholdingStructureFoxconnFarEastLtd71.1%LuSung-Ching5.5%Source:HKExSharePerformanceAbsoluteRelative1-mth103.0%106.1%3-mth82.9%81.4%6-mth99.0%114.2%Source:FactSet12-mthPricePerformanceSource:FactSetRelatedReports:1.FITHonTeng(6088HK)-FY23inline;upbeatFY24EoutlookonAIserver/networking,EVandAirPodsupside–14Mar24(link)2.FITHonTeng(6088HK)-FY23Epreview:earningsrecoveryontrack,multiplegrowthdriversinFY24/25E-8Feb24(link)3.FITHonTeng(6088HK)-3Q23earningsbeatonbetterproductmixandrecord-highGPM-10Nov23(link)4.FITHonTeng(6088HK)-Weak1H23in-line;Positiveoutlookin2H23E–9Aug23(link)EarningsSummary(YE31Dec)FY22AFY23AFY24EFY25EFY26ERevenue(US$mn)4,5314,1964,7155,4126,233YoYgrowth(%)0.9(7.4)12.414.815.2Netprofit(US$mn)170.3129.6201.2256.3340.1YoYgrowth(%)24.5(23.9)55.327.432.7EPS(Reported)(US$cents)2.421.822.833.604.78ConsensusEPS(US$)N/AN/A2.483.051.80P/E(x)6.610.59.27.25.4P/B(x)0.50.50.70.60.6Yield(%)0.00.00.00.00.0ROE(%)7.25.47.99.311.1Netgearing(%)0.00.00.00.00.0Source:Companydata,Bloomberg,CMBIGMestimates