We spoke to FIT's mgmt. following share price correction of 11% yesterday (24 Oct), mainly due to news about inspections by Chinese tax authorities and Natural Resource Department on Hon Hai's key operating sites in China. Mgmt. stated that tax inspection was part of the annual routine exercise and all businesses operate as normal. In our view, despite ongoing overhang on the inspections, share price correction is overdone and valuation becomes attractive at 7.0x/5.6x FY23/24E P/E (1-sd below 5-year avg.), compared to 24%/25% EPS growth in FY24/25E. We are also positive on FIT's 3Q23 results on 9 Nov. We estimate 3Q revenue/net profit to continue QoQ recovery with -8%/+2% YoY (vs. -12%/-99% YoY in 2Q23), largely in-line with guidance. Looking into 2H23E, we expect earnings recovery to continue backed by better product mix (CPU socket, DDR5/high-speed connectors, auto deal) and share gain in iPhone 15. Reiterate BUY. Upcoming catalysts include 3Q23 results on 9 Nov, server product launch, auto biz integration and TWS project wins.

3Q23 preview: QoQ earnings recovery on track. We estimate 3Q23E revenue/net profit of US$1,176mn/50.5mn (-8%/+2% YoY). By segment, we expect smartphone/networking/computing/EV mobility/system product to deliver -10%/-35%/+13%/+90%/-10% YoY, given weak smartphone/CE demand along with product mix changes in networking segment. Computing segment is boosted by new product orders and mild PC market recovery, while EV mobility segment will benefit from auto deal consolidation. We expect 3Q23 net margin will recover to 4.3% (vs. -1.1%/0.04% in 1Q/2Q23) backed by improving product mix and less expense burden.

2H23E outlook: auto business consolidation, iPhone launch, new CPU socket and DDR5 connectors. Mgmt. guided higher-margin auto business consolidation will accelerate margin recovery in 2H23E, and we also expect revenue upside from new CPU socket, DDR5 connector and new iPhone launch in 2H23E. In terms of opex, we estimate FIT's opex ratio to peak at 14% in FY23E and then moderate to 13.2%/12.8% in FY24/25E.

Attractive risk/reward after recent correction; Reiterate BUY. While overhang over inspection may remain in the near term, we think current valuation at 7.0x/5.6x FY23/24E P/E is attractive (1-sd below 5-year avg.), given our positive view on 3Q23 earnings recovery and multiple growth drivers in FY24. We maintain our TP of HK$2.06 based on 11x FY24E P/E (33% below 5-year hist. avg.). Upcoming catalysts include 3Q23 results on 9 Nov, new product ramp-up, auto business consolidation and TWS order wins.