BYD-E reported mixed 1H25 results with revenue and GPM both missed while NI beat street, primarily impacted by drag on smartphone business especially from Jabil restructuring, while offset by strong AIS (rev.+61% YoY) and R&D decrease. While market may debate on its 2H25 outlook given AIS guidance cut (from 50%+ to 35-40%) and H20 server China demand uncertainty, we see better visibility in 2026 following 1) better content growth opportunity as foldable iPhone may adopt Titanium casing and 2) faster server OEM, liquid cooling and power ramp up especially in overseas. Maintain BUY and increase target price from HK$40.9 to HK$52.2 based on 17x 2026E EPS.
　　Key Factors for Rating
　　1H25 results mixed: revenue reached RMB81bn (+3% YoY), missing consensus by 6% primarily due to reduced component revenue upon demand weakness of both key US client and domestic Android. Segment GPMs were stable while OP increased 14% YoY, thanks to lower R&D expense (-10% YoY) as many AIS products transitioned to mass production, leading to NI of RMB1.7bn (+14% YoY) beating consensus by 8%.
　　EV guidance miss but promising 2026 smartphone and server outlook: mgmt. cut AIS 2025 revenue guidance from +50% to 35-40% upon China automotive anti-involution impact. However, mgmt. expects 2026 to stay upbeat upon: 1) key US client’s component business will have 50% growth upon new high-end projects; 2) server OEM, liquid cooling and power solutions business is on fast track capturing domestic and overseas clients.
　　Assembly & Component: 1H25 saw YoY revenue decline in both assembly and component due to lack of growth catalysts. However, mgmt. expect a c.50% YoY revenue growth in component for key US client in 2026 and better GPM from Jabil Chengdu from automation and efficiency improvement.
　　NIP: Revenue declined 4% YoY in 1H25. But mgmt. reported a RMB1bn revenue contribution from server and reaffirmed a full-year revenue target of RMB3-5bn though admitting greater uncertainty upon H20’s sales in China. Mgmt. expect RMB10bn revenue goal for server business over the next 2-3 years, driven by its ramp up in OEM, liquid cooling and power. Company also unveils its plan in optical module, with 800G now in client roadshow and 1.6T in early R&D stage.
　　AIS: revenue grew 61% YoY in 1H25, driven by both BYD sales volume and more content value per car (e.g, ADAS, smart suspension and thermal management). We lower our AIS revenue forecasts by 6%/6%/5% YoY over 2025/26/27 to reflect China’s automotive anti-involution impact on BYD.
　　Valuation
　　We cut 2025/26/27E revenues by 3%/4%/4% and 2025/26/27E EPS by 12%/6%/1% to factor in near term slowdown of assembly and components and AIS growth. However, given BYDE’s solid progress in server business, we expect its mid-term outlook to remain intact. Our new target price of HK$52.2 is based on 17x 2026E EPS (was 16x 2025E EPS).