The company's performance turned losses into profits and continued development of the “3+3” strategy

The company's revenue for the first half of the year was 2.07 billion US dollars, up 15.8% year on year, gross margin was 20.4%, up 4.5 percentage points year on year, profit of 32.524 million US dollars (loss of 8.952 million US dollars in the same period last year), and net interest rate was 1.6%, up 2.1 percentage points year on year. The company management gave guidance: annual revenue increased by high units, gross margin was 20%, and operating profit margin was 5.5%. The company continues to advance the “3+3” strategy, laying out three key industries (EV electric vehicles, 5G AIoT artificial intelligence IoT, audio audio) and three core technologies (copper to optical, wired to wireless, components to system products). In recent years, it has actively integrated resources to accelerate business expansion through mergers and acquisitions, cooperation, etc., such as the company's acquisition of consumer electronic acoustics company Belkin and the acquisition of the famous German automotive connectivity company Prettl SWH (later renamed Voltaira). 25% of the company's revenue in 2023 came from Under the “3+3” strategy, the company plans to account for 30% and 40% of revenue in 2024 and 2025.

The network facility business will benefit from the development of Nvidia's AI servers and optical modules from AI servers, and management raised the guidelines: the annual network facility revenue growth forecast was in the middle double digits, but now it has been raised to a high double digit. The Nvidia B300 series will undergo a major design change. The current On Board solution will be introduced to a socket (socket) design for the first time, and the company may benefit from this change. In addition, the company has now received orders worth 500-1000 US dollars for a single tray from Nvidia Compute Tray, with a total value of hundreds of millions of dollars. According to reports, the Nvidia GB 200 NVL72 has 18 compute trays, and the NVL36 has 9 compute trays. The market estimates that Nvidia will ship 0.01 million NVL72 and 50,000 NVL36 units in 2025, and Hongteng's share is expected to be 15-20%. At the same time, the company is also actively seeking orders for the copper interconnect part of the backplane. Backed by Hon Hai, there is a high chance that the company will gain additional market space in the future. In the field of optical modules, the company recently completed the acquisition of 70% of Huayun Optoelectronics's shares. The move aims to enhance the company's R&D capabilities in high-speed networking and optical market manufacturing, thereby speeding up the product development process. For example, 800G DR82xFR4 products will be completed by the fourth quarter of 2024, and the development of 1.6T SR8/DR8 optical products will be completed by the end of 2025. At the same time, Hongteng and MediaTek are working together to develop a CPO socket, which will provide a solution with advantages such as low power consumption for AI servers.

EVs will benefit from the synergy of mergers and acquisitions, and the continued transformation of the acoustic business production line will be affected by the merger. Looking at the full year, EV business revenue is expected to grow by more than 50%. Hongteng is involved in Tesla's supply chain and produces products such as CPD. Its revenue share is 3% and is expected to grow rapidly. After the merger and acquisition of Voltaira, it can gradually expand to European level capabilities, connect with car manufacturers and tier-1 suppliers, and contribute to the EV business. It is expected to continue to grow significantly next year. In terms of terminal products, in terms of system products, half of the business comes from the Belkin brand business. This year's revenue is about 0.7-0.8 billion US dollars. Revenue is stable and gross profit continues to improve, and the company will continue to launch new products; the other half of the business is acoustic products, and the acoustic headsets produced in Vietnam performed well in the single quarter of this year. However, due to production line transformation and adjustments, management's revenue expectations for this business this year are the same as last year.

Risk warning

We believe the following are some of the more important risks: 1) orders fall short of expectations, 2) R&D products fall short of expectations, and 3) AI development falls short of expectations.