BYD-E reported in-line 1Q24 results with 38% YoY top line and 33% YoY bottom line growth, which include amortisation expenses related to Jabil deal. Management maintains its bullish outlook, particularly on AI server, Jabil operation optimisation, high-end Android and automotive. Company expects quarterly sequential revenue and GPM improvement in 2024. We keep our top line forecasts unchanged but lower net income by 16%/9%/7% to reflect the amortisation expense, which is offset by lower finance cost. Reiterate BUY with a new TP of HK$38.0 from HK$39.8 based on 17x 2024E EPS.
Key Factors for Rating
1Q24 review: RMB36bn sales (+38% YoY) and RMB0.6bn NI (+33% YoY) was mainly attributed to consolidation of Jabil. NI was only 36% of 1H24 consensus mainly due to the amortisation of RMB4.6bn other intangibles associated with the Jabil deal. Adding back RMB0.2bn amortisation per quarter (5-year straight- line with zero residue), we believe 1Q24 results to be largely in line with consensus. GPM decreased 0.8ppt YoY to 6.9% due to energy storage margin drag. Per mgmt., 1Q24 total assets and total liabilities each decreased RMB10bn QoQ mainly due to loan repayment.
2024 outlook: Mgmt. expects a quarterly sequential GPM growth over the rest of 2024 thanks to optimisation of Jabil operation and ramp up of new business to further lift UTR. Mgmt. also guided financial cost to decrease in following quarters upon a fast loan repayment schedule. Per mgmt., BYD-E will refinance or repay all foreign currency loans by end of 1H24 and the remaining would be mostly repaid in 2H24 with BYD-E's own operating cash. We believe this is a realistic target given BYD-E's RMB10bn net operating cash inflow in 2023.
Assembly & Component: In 1Q24, BYDE recorded a YoY revenue increase in assembling thanks to the ramp up in both US client and high-end Android client. Revenue from component achieved an exponential growth contributing from the acquisition of Jabil with stable GPM.
AIS: Mgmt. expects new products including ADAS, thermal management and suspension to drive most revenue growth with stable GPM despite EV price war in 2024 as mgmt. believes BYD Group's auto price cut is mainly in low price segment which would not affect BYD-E's new products in the pipeline. We keep AIS revenue forecast unchanged at 37% in 2024E.
NIP: Sales from residential energy storage further shrank in 1Q24 due to demand slowdown and price war, dragging overall NIP and group margins. We keep our NIP revenue forecasts unchanged but with a slightly lower margin. We believe BYD-E's manufacturing potential has not been fully unleashed yet, and we are positive on the AI server and AMR robotic business with Nvidia from a three-year perspective. We expect AI server could contribute RMB2bn revenues though initial GPM could be lower than corp. average due to small scale.
Key Risks for Rating
1) Weak macro demand, 2) slow key client NPI design win, 3) BYD's EV growth slowdown and change in sourcing strategy, 4) unsmooth consolidation of Jabil.
Valuation
We cut 2024/25/26E EPS by 16%/9%/7% to factor in intangible amortisation expense which is partially offset by lower finance cost upon a new loan repayment schedule. Our new target price of HK$38.0 is based on 17x 2024E EPS (was 15x).