We revise up TP to HK$41.00 and maintain the investment rating as "Buy". We revise up FY23-FY25 EPS to RMB1.553/ RMB2.111/ RMB2.699, respectively. Considering the improved profitability outlook for BYD Electronic (the "Company") and the prospects for synergies from Jabil plant acquisition, we revise up TP and maintain the investment rating as "Buy".
Strong revenue and earnings growth. Revenue and shareholders' net profit in 1H23 were RMB56,180 million (+28.6% yoy) and RMB1,516 million (+139.2% yoy), respectively. Revenue from consumer electronics, new intelligent products and new energy vehicle business increased by 23.8%/ 30.1%/ 89.5% yoy respectively. Gross margin increased by 2.5 ppts yoy to 7.8%, thanks to the improvement in capacity utilization and the optimization of business structure by increasing the revenue share of high gross margin products. At present, the Company has already mass-produced several products in smart cockpit and intelligent driving, and more new energy vehicle products will be mass-produced in 2H23 and next year, especially some high-value products such as suspension, with prices ranging from RMB3,000 to more than RMB10,000. Meanwhile, 70% to 80% of the Company's CAPEX on R&D is allocated to the new energy vehicles business, boosting the Company's competitiveness in this sector. With the mass production of more products, we expect the Company's market share in BYD will gradually increase. In addition, due to product experience and market validation in BYD Auto, we believe that the Company will extend the successful products proven in BYD Auto to other OEMs in the future, further expanding the breadth of the Company's new energy vehicle business. In terms of new intelligent products, the Company will also continue to expand its product line. For example, the Company is expected to cooperate with customers in 3D printing equipment next year. We expect the Company's continuous product line expansion to promote revenue and profit growth.
We expect the benefits from the Company's acquisition of the Jabil factory to exceed market expectations. On 28 August, the Company announced to acquire Jabil's product manufacturing operations in Chengdu and Wuxi for approximately RMB15.8 billion. Jabil's factories in Chengdu and Wuxi are mainly engaged in iPhone structural parts, which will be much higher in value than the Company's current structural products. This acquisition is not only conducive to completing the Company's product line of iPhone structural parts, but also helps the Company to occupy the second place in the market of structural parts, and is expected to further increase the Company's revenue in the consumer electronics business in the future. In addition, this acquisition is financed by the Company's own funds and loans from BYD. The Company has no plans to issue additional shares. We expect that this acquisition will enhance the Company's competitiveness in the high-end components market, and further increase the Company's market share in the supply chain of major customers in North America, which will bring great opportunities for the Company's consumer electronics business expansion.
Catalysts: Promotion and delivery of the acquisition; mass production of more new energy vehicle products.
Risks: Business synergy with factories acquired from Jabil may fall short of expectations; product line expansion may be slower-than-expected.