FIT Hon Teng posted a solid set of 1Q24 results, in-line with its positive profit alert, and mgmt. reiterated its FY24E guidance (rev +low-double digit YoY, GP +mid-double digit YoY, OPM 5.5%) in earnings call. After hosting post-results NDR call with mgmt. on 10 May, we believe recent stock correction was mainly due to profit taking after a 101% rally in the past three months, and we remain positive on its 2H24E outlook backed by AirPods ramp-up, integration of Voltaira auto electronics business and order wins of AI server/networking products (US$500-1,000 content value per compute tray). We slightly adjust FY24-26E forecasts to reflect higher GPM and better sales mix offset by higher opex for new products. Reiterate BUY with a new TP of HK$2.40 based on same 11x FY24E P/E. Catalysts include AirPods shipments and AI server product updates.
1Q24 earnings in line. FIT's 1Q24 revenue of US$965mn (+12% YoY) and net profit of US$10.2mn (vs US$9.3mn of loss in 1Q23), were in line with its earlier positive profit alert, driven by recovery of PC/server markets, solid Voltaira business and a stronger Networking segment. GPM improved 450bps YoY to 20.3% thanks to a better product mix. By segment, EV segment jumped +205% YoY due to the Voltaira merge, while computing segment grew 6% YoY on market recovery and networking segment grew 9% YoY for AI demand and new CPU related products. Despite higher 1Q opex ratio of 17.8% for automotive modules and new audio products, FIT maintained opex ratio target of below 13% for FY25E (vs 14.4% in FY23).
AI server update: US$500-1,000 content value in compute tray. During the earnings call, mgmt. reiterated AI revenue share of 7-9% in FY24E (vs 1% in FY23), and shared business updates on AI-related products and new CPU platforms in 2H24E, such as certified MCIO, EDSFF, PCIe 6.0 and memory socket products. As for FIT's business opportunity in AI server like GB200 NVL36/72, mgmt. expected US$500-1,000 content value per compute tray (excl. copper cables) for the latest AI servers in FY24E. Overall, we expect FIT's revenue/net profit to rebound 12%/52% YoY in FY24E.
Our FY24-26E EPS are 13-33% above consensus; Reiterate BUY. We believe FIT's share price correction post 1Q24 results was mainly due to profit taking after a 101% rally in the past three month. Trading at 8.9x/6.7x FY24/25E P/E, we think the valuation is extremely attractive given multiple growth drivers into FY24-26E. Maintain BUY with new TP of HK$2.40