FY24 net profit a slight miss on GM miss and higher SG&A
　　BYDE’s FY24 result was a mixed bag, with revenue and net profit each grew 36.4%/5.5 to RMB177.3bn/RMB4,265mn respectively. Revenue arrived largely in-line with Bloomberg consensus, while net profit was ~6% below consensus due lower than expected GM, higher PPE depreciation (+75% Yoy) related to Jabil and higher costs from employee stock incentive program. GM was down 1.1 ppts Yoy to 6.9% (vs. consensus at 7.6%) due to unfavourable product mix in 2H24 (i.e. higher smartphone assembly in 4Q24). Latest IDC data showed that in 4Q24, global smartphone shipment grew ~2.4% Yoy/4.9% QoQ to 331mn units (6th consecutive quarter Yoy increase), in which US client’s shipment volume grew 37% QoQ due to new flagship launch.
　　BYDE’s assembly/components/auto segment each delivered stellar revenue growth in FY24, while IoT segment revenue slipped Yoy being dragged by energy storage business. We still expect BYDE’s GM would improve sequentially thanks to continue optimization of Jabil operation, consumer electronics (assembly+ components) segment picks up driven by customers’ new flagship smartphone, and continued capacity reallocation to automotive segment would help utilization rate.
　　Expect more project wins from US client; Increasing generative AI smartphone penetration supports replacement demand
　　BYDE’s assembly service revenue grew 26% Yoy in FY24, while components revenue soared 1.6x Yoy to ~RMB35.6bn, thanks to newly acquired Jabil business (hence share gain in US client) and resilient demand for Android flagships. After having acquired Jabil Singapore (include Chengdu and Wuxi manufacturing sites), BYDE targets to engage more in US clients’ flagship projects (both components and assembly), which would bring synergy and earnings to BYDE in the long run.
　　For Android customers, demand continue gradually picks up in premium smartphone market, share gains in Android clients (Samsung and Google), while Huawei’s return would provide ample support to smartphone market recovery. Together with BYDE’s increased penetration and dollar content in US client’s projects, these would benefit new production sites’ (Zhongshan and Vietnam) utilization rate, hence segment margin to improve, despite revenue expected to be stable Yoy mainly driven by order wins.
　　Generative AI smartphones would begin to lead market trends starting from 2024, as smartphone manufacturers gradually incorporate generative AI functions into their devices. which including Samsung, Xiaomi and other Chinese OEMS, while the gradual rollout of Apple Intelligence globally would also help increase users experience on Apple’s upcoming new flagship smartphone. In medium term, we continue to believe increasing generative AI smartphone penetration would drive a new round of replacement cycle. IDC previous forecast that generative AI smartphones would account for ~mid-teens of total smartphone shipments (~234mn units) in 2024, and further increased to high 20s/>45% in 2025/2026, with shipment reaching 800mn units by 2027, which implies 100% CAGR in 2023-2027.