Core views

The company is a leading global manufacturer in the field of precision components, and Hon Hai is the actual controller of the company.

The development of AI is driving the construction of computing power infrastructure, and the company's high-speed connection system layout covers fields such as copper connections and optical modules, which are expected to fully benefit. The company's AI related products, such as CPU sockets and MCIO connectors used on Compute Boards, have clearly increased revenue to drive performance growth, and the company's AI revenue increased threefold year-on-year in the third quarter. New products such as power busbars and CDU liquid cooling connectors are expected to be launched. At the same time, the company continues to promote product line layouts such as tray-to-tray connection products and 1.6T optical module products to further explore the market space that can be reached by business. Regarding GPU sockets, the company stated at the performance conference that the company has indeed observed the demand for GPU sockets and is leading the way in the GPU socket field. As the scale of business expands and quality and efficiency continues to advance, the company's profitability is expected to increase in the future.

occurrences

The company released its three-quarter report. From January to September 2024, the company achieved revenue and other operating income of 3.241 billion US dollars, an increase of 9.91% over the previous year, and achieved net profit of 0.101 billion US dollars from continuing operations, an increase of 117.79% over the previous year.

Brief review

In the first and third quarters, AI revenue increased threefold year-on-year, and profits increased relatively well.

From January to September 2024, the company achieved revenue and other operating income of 3.241 billion US dollars, an increase of 9.91% year on year, and realized net profit of 0.101 billion US dollars from continuing operations, an increase of 117.79% year on year.

From July to September 2024, the company achieved revenue and other operating income of 1.174 billion US dollars, an increase of 0.83% over the previous year. AI further boosted revenue growth, and the company's AI business revenue in a single quarter increased threefold year-on-year (Sales of AI Products grew threefold higher tolast year). Looking at specific business segments, the company's smartphone revenue was 0.263 billion US dollars, down 11% year on year; Networking revenue was 0.161 billion US dollars, up 66% year on year; computing revenue was 0.22 billion US dollars, up 4% year on year; mobility revenue was 0.111 billion US dollars, down 8% year on year; system products revenue was 0.372 billion US dollars, year on year. Down 3%; others' revenue was $0.047 billion, down 16% year over year. From July to September 2024, the company's gross profit margin was 21.7%, down 0.6 pcts year on year, mainly due to the year-on-year decline in automobile market revenue. In July-September 2024, the company achieved net profit of 0.068 billion US dollars from continuing operations, an increase of 23.86% year over year.

2. The business goals for the next three years are optimistic and reflect confidence.

The company's performance conference stated that it will maintain high single-digit revenue growth expectations for the full year of 2024; gross margin forecast of 20%; sales to expense ratio (sales-to-expense ratio) forecast of 15-16%; and operating profit margin (Operat ing Profit Margin) forecast of 4.5%.

The company's guidance for the next three years is optimistic, with a compound revenue growth rate of 20% for the three years to 2027, a gross profit margin of 22% in 2027, and an operating profit margin (Operat ing ProfitMargin) of 8%.

3. AI products are progressing smoothly.

The company's AI-related products used on compute boards, such as CPU sockets and MCIO connectors, have clearly increased revenue to drive performance growth, and new products such as ORV3power busbars and CDU liquid cooling connectors are expected to be launched. At the same time, the company continues to promote the layout of product lines such as tray-to-tray connection products and 1.6T optical module products to further explore the market space that can be reached by business.

Regarding GPU sockets, the company stated at the performance conference that the company has indeed observed the demand for GPU sockets and is leading the layout in the GPU socket field (We do observe the demand for GPU sockets. We are proud to be the first-supplier and the market.)

4. Profit prediction and investment advice.

The company is a leading global manufacturer in the field of precision components, and Hon Hai is the actual controller of the company. Based on the “3+3” strategy, the company actively lays out the three key industries of 5G AIoT, electric vehicles, and audio and audio, and continues to deepen its leading edge. In 2023, 25% of the company's revenue comes from the “3+3” layout, and plans to reach 30% and 40% in 2024 and 2025. The development of AI drives the construction of computing power infrastructure, and the upgrading of connected system architectures to a higher speed. The company's high-speed connection system layout covers fields such as copper connections and optical modules, which are expected to fully benefit. As the scale of business expands and quality and efficiency continues to advance, the company's profitability is expected to increase in the future. We expect the company's revenue for 2024-2026 to be 4.55 billion US dollars, 5.529 billion US dollars, 6.64 billion US dollars, and net profit to mother of 0.159 billion US dollars, 0.245 billion US dollars, and 0.346 billion US dollars, respectively, corresponding to PE 20x, 13x, and 9x, maintaining the “buy rating”.

5. Risk warning. If the macroeconomic situation falls short of expectations, consumers may be less willing to buy products, and enterprises will also further reduce product procurement demand, which may lead to inventory backlogs, affecting the company's demand for products. AI will drive demand for products related to the company's network facility business. If the subsequent AI development growth rate falls short of expectations, it may affect the development of the company's network facility business. The company lays out a 3+3 strategy, lays out the three key industries of electric vehicles, 5G AIoT artificial intelligence, and audio and audio. The new business layout is accelerated through endogenous and epitaxial methods. The market space is broad, but there is a risk that the company's new products and new business will not progress as expected. If the price of upstream raw materials rises, the company's development of other customers falls short of expectations, or increased market competition, it will lead to a further reduction in gross margin. The company's 3+3 business scenario layout still requires continuous investment. The company is actively improving quality and efficiency, but there is a risk that the profitability will fall short of expectations due to insufficient input and output. Changes in the international situation affect the risk of the company's business development.