The Zhitong Finance App learned that according to a research report released by Everbright Securities, Apple (AAPL.US) still occupies a leading position in the global smart hardware field, and the number of global device activity continues to grow; in recent years, the transformation to a more profitable service business has accelerated, and a strong ecosystem is expected to drive the company's profitability to continue to increase; the company maintains large repurchases and dividends throughout the year. First coverage, giving Apple a “buy” rating.

Apple is a global technology leader, and currently ranks second in the world in terms of market capitalization after Microsoft: Apple was founded in 1976 in California, USA, and listed on the NASDAQ on December 12, 1980. Since its establishment, Apple has launched highly innovative products in various fields such as smartphones, PCs, wearable devices, and MR, leading the development of the industry in various aspects such as product form, function, and ecological interaction. In recent years, the company has continuously expanded its software business category and continued to improve the ecosystem. The FY2023 service business revenue share has increased to 22%, and the company has gradually transformed from a hardware company to a comprehensive company combining software and hardware.

Hardware products lay the user base, and the service business continues to build new growth points: 1) iPhone: Apple's main product, revenue contribution remains above 50%; A-series chips have superior performance and core advantages in iOS ecosystem construction; in the face of high-price and high-profit product strategy+diversified offers, the company continues to consolidate its leading position in the global smartphone industry; 2) Mac/iPad: M series self-developed chips have strong performance to enhance the user experience; 3) Wearable: H2 self-developed chips support seamless connection between devices to form AirPods have a unique competitive advantage, and Apple Watch positions itself as a healthy and strong selling point; 4) Vision Pro: leading the hardware industry, opening a chapter in the spatial computing era, expecting a perfect software ecosystem and second-generation consumer-grade MR to bring in shipments; 5) Service business: It has become a powerful engine for revenue growth, with a profitability twice that of overall hardware products. It is expected to benefit from Apple's active global hardware equipment base of over 2.2 billion units and continue to help grow revenue and profit in the future.

Apple's adherence to software and hardware integration, high-performance products+high-quality iOS ecology+strong supply chain management is the company's core competitiveness: 1) Strong technical strength: Apple started with technology, and Apple's core products all use self-developed SoCs, leading the world in product adaptability and manufacturing processes; 2) Strong brand power: product innovation defining capability+smooth user experience to help the company gain a highly sticky user base; 3) Safe & efficient iOS ecosystem: Closed source security and cross-device collaborative iOS ecosystem, effectively attracting potential customers to purchase hardware products to form a closed commercial loop; in addition, the iOS ecosystem is rich; Diversified service businesses ensure the sustainability of the company's profits; 4) Focus on supply chain management: Apple strictly controls the supply chain and global layout, enhances the certainty of production capacity supply, controls costs while ensuring product quality, further enhances brand competition barriers, and maximizes value.

In terms of AI, it has hardware fundamental+R&D capabilities. Follow WWDC's progress in June: Compared with other US tech giants, Apple is cautious. We think this is mainly due to its considerations of the security of AI technology and user privacy protection. Multiple sources can prove that Apple has actively deployed and continued to increase AI investment internally. Abandoning car construction and switching to AI further shows the company's determination.

Profit forecasting, valuation and ratings: At the hardware product level, Apple still occupies a leading position in the global smart hardware field, and the number of global device activity continues to grow; in recent years, the transformation to a service business with higher profitability has been accelerated, and a strong ecosystem is expected to drive the company's profitability to continue to improve; the company maintains large repurchases and dividends throughout the year, and the FY2023 ROE is 172% significantly higher than that of its peers. Based on the share capital history, we expect FY2024-26 GAAP EPS to be $6.6/7.2/7.7, respectively, +6.5%/+9.8%/+6.4% year-on-year, respectively. The current stock price corresponds to FY2024 PE 29x. First coverage, giving Apple a “buy” rating.

Risk warning: risk that macroeconomic and downstream demand falls short of expectations, geopolitical risks, technological upgrades falling short of expectations, risk of increased market competition, intellectual property risks, etc.