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FIT HON TENG(6088.HK):NDR TAKEAWAYS:OPPORTUNITIES IN US$1.7BN SERVER CONNECTOR/CABLE MARKET; LIFT TP TO HK$2.42

招银国际 ·  Mar 26

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.

The above content is for informational or educational purposes only and does not constitute any investment advice related to Futu. Although we strive to ensure the truthfulness, accuracy, and originality of all such content, we cannot guarantee it.
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