1H22's performance is in line with expectations, and the outlook for the whole year is flat compared with the same period last year.
FIT Hon Teng reported 1H22 results: 1H22 revenue rose 6.0% year-on-year to $2.1 billion, and net profit attributable to shareholders rose 818.8% year-on-year to $85.117 million, in line with the company's earnings forecast range of $8000-$90 million released on July 18. We believe that the strong growth of the company's 1H22 is mainly due to: 1) optimization of product structure; 2) effective control of operating expenses; 3) favorable foreign exchange rate. At the results presentation, the company maintained its guidance for revenue and net profit growth for the whole of 2022 to be flat, and expects 3Q22 revenue to be the same as the same period last year, which we believe indicates that the company may face challenging prospects at 4Q22. As a result, we lowered our target price by 19% to HK $1.22 (given 0.45 times the 2022 forecast PB due to the company's difficult transition period) to maintain the "overweight" rating. The EPS forecast of 2022, 2023, and 2024 is 0.02, 0.02, 0.02, respectively.
3Q22 revenue is expected to be flat, 4Q22 may encounter challenges
Despite 1H22's steady growth, the company expects its 3Q22 revenue to remain flat year-on-year, including: 1) revenue from the smartphone and computer business will remain flat due to weak demand; 2) despite stable demand from the network facilities business, the company expects revenue to remain flat; 3) revenue from the electric vehicle sector will remain flat. The company is optimistic about the demand for electric vehicles, but the lack of core may affect the revenue of the system end products segment or achieve double-digit growth, mainly due to the sales of TWS products. At the same time, due to the uncertainty of the macro environment and weak demand, the company maintains the guidance of flat revenue and net profit growth for 2022, which we believe indicates that the company may face greater challenges at 4Q22.
The growth of electric vehicles and audio products may ease the disadvantages of the network facilities business. 1H22's high-margin products have made steady progress: 1) the revenue of the electric vehicle division increased by 12.3% year-on-year, and the company will launch more high-speed and high-voltage products in 2022 and connection modules in 2023. We believe that the electric vehicle business will become the company's priority business; 2) the 5G AIoT business contributes about 1/3 of the network facilities segment revenue (revenue is down 19.1% year-on-year), and the company's 5G AIoT products still benefit from robust demand in the data center; 3) increased shipments of wired and true wireless Bluetooth headset products led to an increase in system terminal product revenue (up 16.5% year-on-year). We expect the company to continue to optimize its product mix through the "3-3" strategy, in which high-margin products as a percentage of revenue may increase.
Lower the target price to HK $1.22 and maintain the "overweight" rating
We reduce the target price by 19% to HK $1.22 (previous value: HK $1.50), based on 0.45x 2022 forecast PB (previous value: 0.52x 2022 forecast PB). We are cautious about the company's profit outlook and maintain our 2022 / 2023 / 2024 net profit forecast of $138 million / 148 million / 152 million.
Maintain the "overweight" rating.
Risk hint: the development of high-profit business is slower than we expected; trade frictions between China and the United States have intensified.