Maintain "Buy" and increase the target price to HK$38.60. We revise down BYD Electronic's (the "Company") 2024F-2026F EPS forecasts by 27.6%, 16.0% and 14.9% to RMB1.412, RMB2.140 and RMB2.574, respectively, reflecting a 12.8% CAGR. We increase our TP from HK$34.30 to HK$38.60, however, due to higher market and sector valuations. Out target price is equivalent to 2025F PE of 16.5x, which is a 10% premium to global peers' current market cap weighted average PE of 15.0x.

1-9M2024 shareholders' profit was slightly below expectations due to lower than expected gross profit margin. The Company announced its unaudited results for the nine months ended 30 September 2024. Revenue in 1-9M2024 was RMB122.1 bn, up 32.5% yoy. However, gross profit for the period increased by just 14.7% yoy to RMB9.1 bn as gross profit margin declined slightly by 1.2 ppts to 7.4%. Shareholders' profit was almost flat, up 0.6% yoy to RMB3.1 bn.

The decrease in gross profit margin was surprising since it had been previously expected that in 2024 the gross profit margin would improve due to the iPhone upgrade cycle.

Driven by the rapid development of artificial intelligence technology and the replacement cycle of mobile phones, we expect the demand for the Company's consumer electronics products to continue to grow in 2025. We also expect sales of the Company's smartphone components and parts to continue to rebound in 2025, thanks to the strong performance of emerging markets and the trend of upgrading high-end smartphone models.

Catalysts: 1) Improvement of production efficiency at Jabil plants; 2) shipment of AI server products; and 3) mass production of more new energy vehicle products.

Downside risks: 1) market competition may be more intense than expected; and 2) product line expansion may be slower-than-expected.