We upgrade BYDE from Hold to BUY with new TP of HK$31.67, since we believe BYDE will deliver faster-than-expected NPM improvement from 2.7% in 2023E to 2.9%/3.1% in FY24/25E, backed by stabilized Android business, Apple share gain, fast-growing NEV/new intelligent products and improving utilization. BYDE's upbeat 1H23 NP preannouncement of 115-146% YoY growth is also 26%/27% above our/consensus estimates, due to better margin and faster business development. We raised FY23-25E EPS by 11-13% to reflect 1H23 results and better GPM recovery. Our new SOTP-based TP of HK$31.67 implied 17.9x FY23E P/E. The stock trades at 14.4x/11.7x FY23/24E P/E, which is attractive vs 78%/23% EPS growth in FY23/24E. We expect the share will react positively to 1H23 results and upbeat margin recovery.

1H23 earnings beat on better sales and improving margins. BYDE preannounced 1H23 NP growth of 115-146% YoY (Rmb1.36-1.56bn) is 26%/27% above our/consensus estimates, thanks to stronger high-margin segments (Apple business, NEV/new intelligent products) and improving utilization. Implied 2Q23 mid-point NP growth is 122% YoY (vs 1Q23 +155% YoY), mainly due to better GPM and operating efficiency, in our view.

Clear path to margin recovery: stabilized Android, Apple share gain and improved mix with emerging businesses. We believe stabilized Android business and Apple share gain in iPad OEM/components are major margin drivers in FY23E, and improving revenue mix of fast-growing NEV/ intelligent products will boost overall margin in FY24/25E. We expect GPM to improve to 7.8% in FY25E (vs 5.9%/7.1%/7.5% in FY22/23/24E), while NPM will expand to 3.1% in FY25E (vs 1.7%/2.7%/2.9% in FY22/23/24E).

FY23E outlook: Automotive and residential energy storage to drive growth. Looking into FY23E, we are positive on two growth drivers: 1) new intelligent products to deliver stable growth, and residential energy storage revenue to grow 50-100% YoY in FY23E; 2) automotive segment with 100%+ YoY in FY23E driven by parentco orders and external auto OEM (e.g. NVIDIA, Continental and HARMAN).

Margin recovery ahead of expectations; Upgrade to BUY. We lifted FY23-25 EPS by 11-13% for 1H23 results and better margin recovery. We upgrade to BUY as we think the worst is over for BYDE's margins and higher target P/E for NEV/intelligent products (from 15x to 20x) and OEM (from 10x to 15x) are justified by improving profitability and fast-growing emerging biz. The stock trades at 14.4x/11.7x FY23/24E, which is attractive vs 78%/23% EPS growth in FY23/24E. Our new SOTP-based TP of HK$31.67 implied 17.9x FY23E P/E. Catalysts include Apple share gain and better margins.