Investment Rating - The report maintains a "BUY" rating for BYD Electronic with a target price of HKD 41.35, indicating an upside potential of +54.3% from the current price of HKD 27.10 [2][10]. Core Insights - BYD Electronic's 1Q24 results were in line with expectations, showing revenue growth of 38.5% year-on-year to RMB 36.5 billion and net profit growth of 33% to RMB 610 million, primarily driven by the consolidation of Jabil Singapore [2][3]. - The company is expected to benefit from increased project wins from US clients following the acquisition of Jabil, which positions BYD Electronic as a strategic partner for flagship projects [2][3]. - The generative AI smartphone market is anticipated to drive a new replacement cycle, with shipments expected to grow significantly from 4% in 2023 to 8% in 2024, potentially reaching 522 million units by 2027 [4]. Financial Performance - BYD Electronic's assembly service revenue grew by 23% year-on-year in FY23, while components revenue saw a decline of approximately 4% year-on-year [3]. - The automotive intelligent segment revenue surged by 52% year-on-year to RMB 14.1 billion in FY23, reflecting strong demand for electrification and intelligent systems [7]. - The IoT and automotive segments are projected to achieve over 20% growth in the next 2-3 years, with revenue expected to reach approximately RMB 40 billion to RMB 50 billion in FY24E-25E [7][9]. Earnings Forecast - The report has adjusted BYD Electronic's FY24E and FY25E earnings forecasts, projecting a revenue growth of 25.8% and a net profit growth of 20.0% CAGR from FY23 to FY26E [9][11]. - The company is expected to maintain a gross margin of around 8.0% to 9.0% in the coming years, supported by improved product mix and operational efficiencies [9][11]. Market Position and Strategy - BYD Electronic is diversifying its business away from smartphone-related activities, focusing on IoT and automotive segments as key growth drivers [9][10]. - The company has established a strategic partnership with NVIDIA, which will enhance its capabilities in AI products, including customized servers for internet customers [6][9].
1Q24 result in-line, AI exposure next to watch