Core Viewpoint - Hongteng Precision (06088) has seen its stock price increase by over 80% this month, with a recent rise of 8.48% to HKD 4.86, reflecting positive market sentiment towards its business transformation and growth prospects in AI and automotive sectors [1] Financial Performance - For the first half of the year, Hongteng reported revenue of USD 2.305 billion, a year-on-year increase of 11.53% [1] - The profit attributable to the company's owners was USD 31.511 million, a decrease of 3.11% year-on-year [1] Strategic Business Segments - The revenue contribution from two strategic business segments, AI cloud and automotive, increased to 36% in Q2, up from 24% in 2024, with respective year-on-year growth rates of 28% and 115% [1] - The company is pursuing a "3+3 strategy" aimed at enhancing its cloud/AI server products and increasing production capacity for AirPods, with expectations to reach 2-3 production lines by FY25 and a long-term target of 6 lines [1] Market Outlook - The recent stock price surge is seen as a reflection of the market's optimistic view on opportunities in liquid cooling and thermal management within AI servers [1]

Core Viewpoint - Hongteng Precision (06088) has seen its stock price increase by over 80% in the month, with a current price of 4.86 HKD and a trading volume of 426 million HKD [1] Financial Performance - For the first half of the year, Hongteng reported revenue of 2.305 billion USD, an increase of 11.53% year-on-year [1] - The profit attributable to the company's owners was 31.51 million USD, a decrease of 3.11% year-on-year [1] Strategic Business Insights - According to CMB International, after discussions with management, there is optimism regarding Hongteng's accelerated business transformation in Q2 [1] - The revenue contribution from two strategic business segments, AI cloud and automotive, increased to 36% in Q2, up from 24% expected for 2024, with respective year-on-year growth rates of 28% and 115% [1] Long-term Strategy - CMB International holds a positive outlook on Hongteng's "3+3 strategy" aimed for 2026-27, focusing on cloud/AI server products and increased production capacity for AirPods [1] - The company is expected to achieve 2-3 production lines for AirPods by FY25, with a long-term target of 6 production lines [1] - The recent stock price increase reflects market optimism regarding opportunities in liquid cooling and thermal management for AI servers [1]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 150.00 and USD 152.90 [6][7]. Core Insights - The company is expected to experience short-term profit pressure due to increased investment in flash sales, although its e-commerce business is projected to perform steadily in 1QFY26 with a year-on-year growth of 11% in CMR [1][2]. - The cloud business is anticipated to continue its accelerated growth, with a projected revenue increase of 22% year-on-year in 1QFY26, supported by strong external demand [1][2]. - The report highlights the rapid growth of the flash sales business, which launched on May 2, and the significant investments made to attract both merchants and consumers [3][4]. Revenue and Profit Forecast - The company’s revenue for 1QFY26 is expected to increase by 1% year-on-year to CNY 245.7 billion, with adjusted EBITA projected to decline by 16.5% to CNY 37.6 billion due to increased spending on flash sales [2][11]. - The adjusted net profit forecast for FY26, FY27, and FY28 has been reduced by 20.6%, 22.2%, and 21.3% respectively, reflecting the higher-than-expected investments in flash sales [4][11]. Business Segments and Performance - The report notes that the flash sales business has seen a rapid increase in daily order volume, reaching over 80 million orders per day, with significant user engagement improvements [3][4]. - The company’s various business segments, including the Taobao Group and local life services, are expected to show mixed performance, with some segments continuing to reduce losses while others face challenges [2][11]. Valuation and Estimates - The report adjusts the valuation based on a sum-of-the-parts (SOTP) approach, with new target prices reflecting a decrease due to increased competition and investment pressures [4][14]. - The estimated non-GAAP net profit for FY26 is projected at CNY 134 billion, with a corresponding PE ratio of 13.36 [10][12].