Maintain BUY and raise TP to HK$2.42 to reflect stronger demand of next-gen high-speed connectivity in AI servers in FY24/25E, backed by MCIO connectors /cables and high-speed I/O products, recent launch of 224G high-speed products at DesignCon (link), and collaboration with MediaTek for high-speed connectivity solutions in CPO sockets at OFC (link). During our NDR last week, mgmt. was positive on rising copper connectivity trend in AI servers and expected 1) 15-20% YoY for networking/server in FY24E (30-40% GPM), and 2) AI server related revenue (mainly copper) to reach 8-10% FY24E sales (vs. 1% in FY23), backed by new copper products and high-speed connection products in AI server. We lifted FY24-25 EPS by 9-10% to reflect stronger demand of AI-related products and share gain from the US peers (Amphenol, TEL, Molex) in global server connector market following mass production of new AI products in FY24/25E.
Poised to benefit from AI server copper connectivity trends. As a global server connector leader (along with Amphenol, TEL and Molex), during our NDR last week, FIT mgmt. is positive on the trend of high-speed copper connectivity in Nvidia's GB200 NVL72, which uses 5,000 copper cables (over 2 miles) for intra-rank connections for better reliability and cost/power efficiency. Leveraging collaboration with Foxconn Group and key ODM/CSP players for Nvidia products, FIT guided 15-20% YoY growth for networking /server segment, and AI-related products (mainly copper) will reach 8-10% of FY24E sales (vs 1% in FY23), driven by new copper products launched in 4Q23 and 2H24E mass production of MCIO connectors/cables and high- speed I/O such as EDSFF and Gen-Z connectors.
Server connector & cable market TAM to reach US$ 1.7bn in 2025. Mgmt. estimated global server connector & cable market TAM of US$ 1.7bn in 2025, and we expect FIT to capture 20-30% market share, reaching US$500mn sales in FY25E. Overall, we expect FIT's net profit to grow 55%/27% YoY in FY24/25E, backed by AI server connectivity product ramp- up, AirPods share gain and Voltaira auto business consolidation.
Expect more catalysts in near term; Raise TP to HK$2.42. FIT's stock surged 53% since our last TP upgrade on 14 Mar (report), driven by upbeat FY24 guidance and opportunities of within-rack copper connectivity in NVIDIA's GB200 NVL72 system at GTC 2024. Trading at 9.2x/7.2x FY24/25 P/E (vs 15x hist. avg. P/E), we think the valuation is attractive. Reiterate BUY with new TP of HK$ 2.42, based on same 11x FY24E P/E. Near-term catalysts include AI server product launch and AirPods shipment.