We maintain an investment rating of “buy” and set a target price of HK$2.42. We forecast earnings per share for 2024-2026 of $0.025/$0.034/$0.042, respectively. Considering future performance growth and historical valuation levels, we have given a price-earnings ratio of 12.5 times the 2024 price-earnings ratio, corresponding to a target price of HK$2.42, and maintaining an investment rating of “buy”.
Hongteng Precision (the “Company”)'s results for the first quarter of 2024 are in line with our expectations. Revenue for the first quarter of 2024 increased 12.0% year over year to $965 million. The company's gross margin increased 4.5 percentage points year over year to 20.3%, and gross profit increased 44 percent year over year. Shareholders' net profit was $10 million.
The TWS business for major North American customers is expected to start growing in the second half of 2024 and accelerate in 2025. The company's first Airpods production line is located in Vietnam, and delivery began in the first quarter of 2024; the corresponding business is expected to account for 5%-7% of the company's total revenue in 2024. The company plans to add 6 more production lines in India in 2025. As a result, we expect a surge in production capacity and corresponding revenue growth in 2025. We expect the company's share of Airpods to exceed 30% in the future.
We expect the company's profits to continue to rise. Management expects double-digit revenue growth for the full year of 2024, stable gross margin of around 20%, and significant growth in operating profit. The company also hopes to keep the top three operating expenses below 13% in 2025 (14.4% in 2023). The company expects electric vehicles, next-generation 5G AIoT, and acoustics businesses to account for 30% of revenue in 2024 and 40% in 2025. Benefiting from the continued expansion of the Airpods production line, the synergy from the acquisition of FIT volaira, and the opportunities brought by AI, we expect the company to achieve double-digit revenue growth in 2024-2026, while profits will grow even faster.
Catalyst: Airpods' share of the business exceeded market expectations; the AI market expanded faster than expected.
Risk: The electric vehicle product business is more competitive than expected; TWS product penetration is lower than expected; server and storage demand is lower than expected.