BYD-E' reported in-inline 2H23 results with 16% YoY top line and +106% YoY bottom line growth and guides a busy 2024 primarily focusing on Jabil consolidation, high-end Android and automotive component growth. BYD-E is progressing well on the Jabil consolidation including undergoing a series of operation optimisation to cut cost. On AIS business, BYD-E is accelerating its tier-1 role transformation to both BYD Group and external customers offering full range EV components with growing content value. We believe the better operating leverage in AIS should be able to counter the ongoing price war and keep GPM stable. Reiterate BUY with a new TP of HK$39.8 from HK$39.5 based on 15x 2024E EPS and we view the recent market correction offers a good entry point.
Key Factors for Rating
2H23 review: RMB74bn sales (+16% YoY) and RMB2.5bn NI (+106% YoY) was in line with previous profit alert. GPM improved 1.8ppts YoY to 8.2% thanks to US client ramp up and better margins upon improved utilisation. Mgmt. guides a bullish 2024 driven by US client share gain including Jabil casing, high-end Android growth, ramp up of new automotive parts like ADAS, suspension and thermal management.
US client: BYD-E achieve US$10bn revenues or 48% of total revenues from its key customer in 2023 driven by smartphone back cover glass, structural parts and tablet assembly. Mgmt. expect the acquisition of Jabil to set foundation for casing glass module integration and eventually smartphone assembly, which bears a much higher TAM and profitable opportunity. We believe BYD-E's execution will lead to a quality growth in this client with decent ROIC.
Android business: BYD-E has leading supply position in major Android OEMs especially for their flagship models which have been selling well since 4Q23. Mgmt. believed its consumer electronic business would benefit from the new replacement cycle driven by on-device AI and increasing adoption of Titanium casing in high-end models in 2024.
AIS: 2H23 revenues grew 32% YoY thanks to strong BYD EV sales and penetration into intelligent cockpit, ADAS, thermal management, controller, sensor and suspension. Mgmt. expect new products other than traditional central panel will contribute most revenue growth with stable GPM despite of EV price war in 2024. We expect AIS revenues to grow 37% in 2024E.
NIP: 2H23 sales grew 14% YoY to RMB9bn, slightly below our estimate by 9% probably due to residential energy storage slowdown. Mgmt. has close partnership with Nvidia and guides its first delivery of AI server in April 2024.
Key Risks for Rating
1) Weak macro demand, 2) slow key client NPI design win, 3) BYD's EV growth
slowdown and change in sourcing strategy, 4) unsmooth consolidation of Jabil.
Valuation
We increase our 2024/25E revenues by 18%/16% to reflect primarily the consolidation of Jabil Mobility from Dec 2023 and fine-tuning of growth assumptions in NIP and AIS businesses. We keep overall GPM across business lines stable except Component GPM would be diluted by Jabil Mobility (11% GPM in FY23). Due to increase in financing costs of loan facilitating the acquisition, we only increase 2024/25E EPS by 13%/10% to RMB2.44/2.94. Our new target price of HK$39.8 is based on 15x 2024E EPS (was 17x).
2H23 Results Highlight
Assembly & Component: despite the weak market, revenue from consumer electronics business increased 15% YoY to RMB56bn in 2H23. Assembly grew 15% YoY to RMB48bn in 2H23 mainly thanks to the increasing share and shipment from key US client, beating BOCIe by 5%. Revenue from component business increased 16% YoY to RMB9bn in 2H23 thanks to business recovery in high-end Android. Mgmt. expected revenue to grow with healthy GPM in 2024 given BYDE's 1) increasing supply share in both US client and Android OEMs and 2) increasing product mix in cooling parts and Titanium casing in high-end Android smartphone.
AIS: driven by strong EV sales of BYD parent company and its share gain in intelligent cockpit, ADAS, thermal management, controller, sensor and suspension, AIS sales grew 32% YoY to RMB9bn in 2H23, though below our expectation probably due to slower ramp up of new products. Mgmt. believed the mass production of thermal management systems, advanced suspension and more sensors for high-end BYD models would contribute to strong AIS revenue growth in 2024. Mgmt. is also confident to maintain stable GPM at the price competitive automotive market through their strong BOM cost management.
NIP: revenue grew 14% YoY to RMB9bn in 2H23, consisting residential energy storage, smart home, game hardware and drone. Per mgmt., BYDE is cooperating with Nvidia in AI server ODM and will start delivery to key cloud operators from April 2024.
Earnings Revisions
We increase our 2024/25E revenues by 18%/16% to reflect primarily the consolidation of Jabil Mobility from Dec 2023 and fine-tuning of growth assumptions in NIP and AIS businesses. We keep overall GPM across business lines stable except Component GPM would be diluted by Jabil Mobility (11% GPM in FY23). Due to increase in financing costs of loan facilitating the acquisition, we only increase 2024/25E EPS by 13%/10% to RMB2.44/2.94. Our new target price of HK$39.8 is based on 15x 2024E EPS (was 17x).