We maintain a “buy” investment rating and set a target price of HK$1.65. We expect earnings per share for the 2024-2026 fiscal year to be $0.023/$0.029/$0.035, respectively. Considering future performance growth and historical valuation levels, we gave a price-earnings ratio of 9.0 times 2024, equivalent to a target price of HK$1.65, maintaining a “buy” investment rating.
Hongteng Precision (the “Company”)'s fiscal year 2023 results are in line with our expectations. FY2023 revenue fell 7.4% year over year to $4.196 billion. Shareholders' net profit fell 23.5% year over year to $130 million.
The “3+3” strategy provides a strong impetus for the company's development. The company implements a “3+3” strategy to promote the development of electric vehicles, 5G AIoT, and acoustic products. In the electric vehicle business, the trend of electrification and intelligence places higher demands on the quantity and quality of automotive connectors. With a full range of connector products, global layout and MIH assistance, the electric vehicle business will be a strong driving force for its development. In terms of the acoustics business, the company has a mature portfolio of acoustic products and has become a supplier of TWS products to North American customers. The explosive growth of AI servers has brought huge demand for high-speed connectors; therefore, we expect that the company will benefit from data center construction driven by AI development, and corresponding copper-based and optical-based products will face huge market demand. The company expects electric vehicles, next-generation 5G AIoT, and acoustics businesses to account for 30% of revenue in 2024 and 40% in 2025.
The depth of product expansion in the electric vehicle business is expected to exceed market expectations. The company has completed the acquisition of SWH and changed its name to FIT Volaira. As one of the leading manufacturers of sensors, connectors and electrification solutions, it has long served automotive OEMs and the world's largest tier 1 and 2 automotive systems suppliers. The company's product matrix will be further enriched, and the company's layout in Europe will be greatly accelerated; the company is expected to gain more European and American customers. Additionally, the company will further develop partners and customers through MIH. Therefore, we believe that the development of the electric vehicle business will exceed market expectations.
Catalysts: Further expansion of the customer base; mass production of new electric vehicle products; expansion in the AI market.
Risks: Electric vehicle product business expansion is slower than expected; TWS product penetration falls short of expectations; server and storage demand falls short of expectations.