We revise up TP to HK$41.66 and maintain the investment rating as "Buy". Considering the improved profitability outlook for BYD Electronic (the "Company") and the prospects for synergies from Jabil plant acquisition, we forecast 2023-2025 EPS to be RMB1.832/ RMB2.436/ RMB3.038. Considering valuation level of peer companies, we give 2024 PER of 16.0x, corresponding to TP of HK$41.66, maintaining the investment rating as "Buy". The TP represents 21.3x/ 16.0x/ 12.8x FY23-FY25 PER.

3Q23 results in-line with expectations, and product expansion will be further promoted. Revenue and shareholders' net profit in 3Q23 were RMB35,964 million (+31.0% yoy) and RMB1,528 million (+153.4% yoy), respectively, due to further expansion in product categories and market share in supply chain of Apple and BYD. Gross margin increased by 3.2 ppts yoy to 9.7%, thanks to the improvement in capacity utilization and the optimization of business structure by increasing the revenue share of high gross margin products. As the current demand from major North American customers and parent company is still very strong, and the Company continues to break into new product through acquisition and self-built production lines, we believe that revenue and profit growth will remain strong.

We expect the benefits from the Company's acquisition of the Jabil factories to exceed market expectations. At present, the Company's share in iPad assembly is already very high, and there is not much room for improvement; the future focus of consumer electronics field expansion will be on components, and the most important one currently is the metal middle frame. By acquiring Jabil's factories, the Company will become the world's second largest smartphone structural parts manufacturer. The price of this acquisition is RMB15.8 billion (US$2.2 billion), while the revenue and profit of the acquisition target in FY22 were US$4,260 million and US$143 million, respectively; the acquisition price is equivalent to 15.4x FY22 PER and 9.3x FY21 PER. Although the acquisition requires loan from the parent company and incurs interest expenses (principal amount of RMB15,422 million at an interest rate based on SOFR+68 bps), according to our estimation, consolidated profits from the acquisition will be greater than the interest expenses incurred. In addition, we believe that as this acquisition is the core strategy for future business expansion, the Company's management will personally lead the team to bring its own advantages, especially its capabilities in automation and advantages in material technology, to the acquired Jabil factories, thereby improving the production efficiency and profit margin of the factories. Thus, we believe that the long-term effect of this acquisition will be higher than market expectations.

Catalysts: Promotion and delivery of the acquisition; mass production of more new energy vehicle products.

Risks: The acquisition of Jabil may not go smoothly; product line expansion may be slower-than-expected.