We maintain the investment rating as "Buy" and set TP to HK$38.70. Considering the improved profitability outlook for BYD Electronic (the "Company") and the prospects for synergies from Jabil plant acquisition, we forecast its 2024-2026 EPS to be RMB2.380/ RMB2.984/ RMB3.459. Considering the valuation level of peer companies, we give 2024 PER of 15.0x, corresponding to TP of HK$38.70, maintaining the investment rating as "Buy". The TP represents 15.0x/ 12.0x/ 10.3 FY24-FY26 PER.
2023 results in-line with expectations, and product expansion will be further promoted. Revenue and shareholders' net profit in 2023 were RMB129,957 million (+21.2% yoy) and RMB4,041 million (+117.6% yoy), respectively, due to further expansion in product categories and market share in supply chain of Apple and BYD. Gross margin increased by 2.1 ppts yoy to 8.0%, thanks to the improvement in operating efficiency and the optimization of business structure by increasing the revenue share of high gross margin products. Due to the business expansion from acquisition of Jabil plants, massive production of more intelligent driving and intelligent suspension products and their rising penetration rate, we expect the Company's revenue to still record remarkable growth in 2024 and afterwards. Moreover, relying on its advantages in materials, manufacturing, heat dissipation and other aspects, the Company enters the AI server market and is expected to put AI servers into mass production in April this year; we believe that the Company's long-term cooperative relationship with NVIDIA and its own strong technology and manufacturing capabilities will provide unique competitive advantages for its AI server business, which will become another drive engine of the Company.
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. Although the acquisition will incur interest expense, we expect the profit from the business to be significantly higher than the interest expense. At the same time, through synergy and replication of BYD Electronic's automation technology to the Jabil factory, we expect them to improve the production efficiency and profitability of this part of business. Thus, we believe that the long-term effect of this acquisition will be higher than market expectations.
Catalysts: Efficiency gains at Jabil plants; mass production of more new energy vehicle products.
Risks: Market competition may be more intense than expected; product line expansion may be slower-than-expected.