Consumer electronics trends are improving: Benefiting from the expansion of product categories from major overseas customers and the recovery in demand for high-end Android smartphones, the company's consumer electronics business has grown dramatically this year. Judging from the seasonal pattern of business, the fourth quarter's performance will be better than the third quarter. Orders from major overseas customers continued to rise, and the company raised gross margin levels through synergy effects such as platforms, technology, and supply chain support. It is expected that as the degree of automation continues to increase next year, there is still room for a slight increase in gross margin for major overseas customers.

High-value-added automotive electronics products began to be released in the second half of the year: mass production of active suspensions began in the second half of the year, and high-value-added products such as smart cockpits, intelligent driving, and thermal management continued to be shipped. Coupled with continued internal cost reduction, it was beneficial to relieve the pressure of the industry to reduce prices and maintain a stable level of gross margin. Automotive electronics is expected to be close to 20 billion yuan this year, and the performance in the second half of the year was better than in the first half. Starting next year, products with high added value will contribute to annual profits. It is estimated that next year's automotive electronics revenue will exceed 30 billion yuan, which is higher than market expectations.

AI-related businesses began to contribute revenue: The company expanded enterprise-grade general-purpose servers, storage servers, AI servers, liquid-cooled cooling, and power management products and solutions.

In the second half of the year, the company will deepen cooperation with top customers in various segments. At the same time, new businesses such as AIDC and industrial robots will begin to be launched, and batch delivery will be achieved. The AI-related business is expected to generate revenue of around 1 billion yuan this year and double or more next year.

Performance relay release: The company's profit growth points in 2025 come from: the gross margin of structural parts for major overseas customers continued to rise; the expansion of the overseas customer assembly business category, which is expected to extend to high-end products; continuous mass production of high-value-added products for automotive electronics, achieving a growth rate of more than 50%; and the AI-related parts and assembly business is beginning to grow. However, the negative impact of this year's decline in household storage business will be minimal next year, and financial expenses will also be drastically reduced due to continued repayment.

Target price HK$54: We forecast that BYD Electronics' revenue for 2024-2026 will be RMB 167.3 billion, RMB 188.5 billion and RMB 204.1 billion, up 28.7%, and 8.3%; net profit for 2024-2026 will be RMB 4.62 billion, 5.69 billion and RMB 6.72 billion, respectively, up 14.3%, 23.2% and 18.1%. The company was given a target price of HK$54, which is equivalent to 20 times the price-earnings ratio in 2025. There is room for an increase of 36.4% from the current price, maintaining the purchase rating.