BYD-E's 2H24 results were a miss primarily due to GPM pressure from heavy D&A expenses of RMB3.8bn (+139%/45% YoY/HoH). Mgmt. anticipates profit improvement driven by multiple catalysts: successful Jabil integration with enhanced automation, broader product portfolio with a US key client, premium smartphone momentum, and mass production of new automotive products including suspension, controller, sensor, and ADAS systems. Additionally, optionality arises in liquid cooling, power and casing for AI servers as Company enjoys a strong domestic AI server demand momentum. Maintain BUY with new target price of HK53.2 (was HK39.4) based on 18x 2025E EPS.
Key Factors for Rating
2H24 miss due to D&A and ESOP charge: Rev. reached RMB99bn (+34% YoY), in line with BOCIe and slightly beating consensus by 4%. GPM remained flat HoH at 7%, missing BOCIe and consensus by 1.4ppts and 1.2ppts, mainly impacted by substantial D&A expenses of RMB3.8bn (+139%/45% YoY/HoH). Net income grew 9% YoY to RMB2.7bn but missed BOCIe and consensus by 8% and 9% respectively. The company incurred certain ESOP charge in 4Q24 which impacted net income and has announced a new round of ESOP totaled at least RMB250m charge over 2025-27.
Assembly & Component: Assembly and component revenues reached RMB58bn (+21% YoY, driven by strong Android demand and iPad EMS) and RMB20bn (+136% YoY, driven by Jabil consolidation), respectively. For 2025, mgmt. projects flat Android revenue growth with improved profitability through increased exposure to premium models including foldables. The US key client should deliver moderate revenue growth and strong revenue growth in 2025 by increased automation and cost control. Mgmt. demonstrates that with heavy investment in automation, Jabil’s automation rate will increase from under 20% in 2023 to 85% in 2025, resulting in 35% or 15k labour workforce cut.
AIS: 2H24 revenues surged 60% YoY, benefiting from robust BYD EV sales and increased penetration in intelligent cockpit, ADAS, thermal management, and intelligent suspension systems. Current average value per vehicle from BYD stands at RMB3-4k, with the potential to increase significantly through intelligent suspension and driving systems integration in 2025 as BYD accelerates smart driving adoption. Mgmt. targets over RMB30bn revenue in 2025 as most of the new key project R&D were completed in 2024 and entering mass production.
NIP: 2H24 sales declined 15% YoY to RMB8bn, missing BOCIe by 19% due to ESS weakness and AI server delay in our view. Mgmt. targets AI server revenue to reach RMB3-5bn in 2025, leveraging BYD-E's comprehensive product portfolio from casing, connector to power and liquid cooling. Mass production of ML16 liquid cooling AI server will commence from April 2025. For robotics, BYD-E positions itself as a key robotics component supplier and will play a key role in future BYD robotics and other key Chinese humanoid robotic clients.
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 increase our 2025/26E revenues by 5%/4% to primarily reflect upbeat assembly and AIS revenues driven by strong smartphone/iPad and BYD EV growth, offset by weakness in component and NIP. We keep our margin forecast assumption largely unchanged as we believe the 2024 weakness was mainly due to one-off ESOP impact and accelerated D&A charges.
We increase 2025/26E EPS by 8%/12% to RMB2.8/3.4. Our new target price of HK$53.2 is based on 18x 2025E EPS (was 14x 2025E EPS).