3Q24 results are in line with our expectations

The company announced 3Q24 results: revenue increased 0.83% year over year to 1.174 billion US dollars, and net profit to mother increased 23.86% year over year to 68.01 million US dollars. The company's performance was largely in line with our expectations.

Development trends

AI infrastructure continues to flourish, and the network business is growing rapidly. 3Q24 revenue increased by 0.83% year over year. We judge that this was mainly due to rapid growth in the network business, which was partially offset by the weakness of the smartphone, EV electric vehicle, and system product business. According to the company announcement, 3Q24 smartphone/network/computer/EV electric vehicle/system product revenue was -11%/+66%/+4%/-8%/-3% year-on-year to 0.263 billion/ 0.161 billion/ 0.22 billion/ 0.111 billion/ 0.372 billion US dollars, respectively.

The company reduced costs and controlled fees to improve profitability, and the 3Q24 net interest rate increased by 1.1 ppt year-on-year. 3Q24 The company's net profit elasticity is greater than revenue. We judge that the increase in profitability is mainly due to a combination of two factors:

1) Driven by weak performance in some businesses, 3Q24 gross margin decreased by 0.6ppt to 21.7% year on year; 2) Benefiting from cost reduction and cost control measures such as improved operational efficiency, 3Q24 net margin increased by 1.1 ppt to 5.8% year on year. Looking forward to the future, we are optimistic that the high-margin AI business will grow, optimize the product structure, and that the company's profitability will stabilize, moderate and improve under fee control.

Actively expand AI data center products, and the “3+3” strategic transformation continues to advance: 1) In terms of AI data center business, HHTD24 Honghai Technology Day exhibited cutting-edge technology products such as CPO (Co-PackagedOptics) high-speed connection solutions and 800G high-speed connector modules in October; at the OCP Global Summit in October, the company exhibited customized 224G+ XPU/GPU connection slots, ORV3 power cables, active optical fiber cables (AOC), OSFP1600, and The QSFP-DD port configuration reflects the company's leading position in AI data centers; 2) In the automotive business, we are optimistic that the high-quality technical foundation and product capabilities of the Auto-Kabel Group acquired by the company will continue to push Hongteng to complete the full range of high speed+high voltage product layouts in the automotive connector field.

Profit forecasting and valuation

The 2024/2025 profit forecast remains unchanged, and the current stock price corresponds to 15 times/10.4 times P/E for 2024/2025. The outperforming industry rating and the target price of HK$3.62 remain unchanged, corresponding to 13.2 times the 2025 P/E, with 27% upside compared to the current stock price.

risks

Demand for global consumer electronics terminals continues to weaken, and the integration and synergy effects of the acquisition of Voltaira fall short of expectations.