1H25 result a mixed bag, net profit in-line thanks to stringent cost control
　　BYDE’s 1H25 result was a mixed bag, with revenue and net profit each grew 2.6%/14.0% to RMB80.6bn/RMB1,730mn respectively.
　　Revenue arrived ~6% below Bloomberg consensus, while net profit came in largely in-line with Bloomberg consensus. BYDE’s 1H25 revenue and net profit reached 40%/32% of our FY25E estimates. The
　　bottom line was supported by i) GM edged up 0.1ppt Yoy to 6.9% (vs. FY25E consensus at 7.3%), ii) lower R&D ratio (2.8% vs. 3.1% of revenue) as a result of many AIS projects entered mass production supported the bottom line, and iii) reversal of RMB43.6mn financial assets’ impairment.
　　Though BYDE still facing near term pressure in new intelligent segment and also guided down AIS revenue growth guidance due to industry’s involution impact, Management provided a positive outlook for all segments in FY26E. We still expect BYDE’s GM would improve sequentially thanks to continue optimization of Jabil operation, gaining more share in key US client’s projects (with increasing share in high end components) + stable Android demand to drive consumer electronics (assembly+components) segment, meanwhile AI server would be another upcoming growth driver, automotive segment growth would continue outperform overall revenue growth.
　　Stable 2H25 outlook for consumer electronics; Expect more high end project wins from key US client;
　　As a result of lukewarm smartphone market (shipment grew +1.5%/1.0% Yoy in 1Q25/2Q25), BYDE’s assembly service revenue was marginally down by 2% Yoy in 1H25 to RMB47.2bn, while components revenue dropped 10% Yoy to ~RMB13.8bn. Management would expect Jabil revenue to be flattish at most Yoy in FY25E, as partial change in new flagship models’ material (from titanium to aluminum, hence with lower ASP), while GM would be similar to FY24, thanks to continued improvement in operational efficiency.
　　After having acquired Jabil Singapore (include Chengdu and Wuxi manufacturing sites), BYDE targets continue to engage in key US clients’ high end/ flagship projects (both components and assembly), which would bring both synergy and improved earnings to BYDE in the long run.
　　Looking forward to FY26E, BYDE expects Jabil business to grow >50% Yoy and we believe the more titanium casing will be adopted in more models as well as the rumoured first ever foldable smartphone.
　　Meanwhile engaging in more non-smartphone projects (currently 50% share in smart home products) would further provide upside for Jabil’s revenue and profitability.
　　Enriching AI server product portfolio; AIS short term outlook guided down but increasing dollar content per car a bright spot ; Robotics next to watch
　　Segment revenue (new intelligent products + automotive) rose 29% Yoy (vs. 33.6% CAGR in FY20-FY24) and reached RMB 19.7bn in 1H25, accounted for 24% of total revenue (vs. 18%/25%/25%/20% in FY21-FY24). During the period, new intelligent product sales wasd down 4% Yoy to RMB7.2bn (~9% of total revenue) due to energy storage business remained under pressure. Despite near term pressure persists, we expect new intelligent segment revenue growth would pick up thanks to AI server related business would accelerate from 2H25 onwards. Management shared that AI server related business revenue was >RMB1bn in 1H25, in which its Nvidia GB200/300 NVL72 racks’ liquid cooling products (incl. quick connectors, cold plate and manifolds) were qualified by NVDA. BYDE aims to begin shipment in 2H25 and expects mass shipment in FY26E.
　　In addition, Management expects domestic AI servers will also begin to adopt liquid cooling (vs. currently using air cooling due to GPU constraints), hence further expanding the total addressable market. AI products (including AI servers, liquid cooling, power supply, AI edge computing and AIPC etc) would be another growth driver in the coming years driven by both international customers and local CSPs. BYDE will provide customized servers for China internet customers, as well as standardized products to domestic cloud service providers.
　　BYDE also unveiled its plan in optical module products, for optical transceivers, BYDE addressed that it already has the ability to mass produce 800G products, and aims to reach 50k unit shipment / month in FY25. BYDE also mentioned during the result call that its CPO (Co-packaged optics) products are undergoing R&D and will enter mass production in late 2026 or 2027. All these reflect BYDE are actively expanding their AI server business/ product portfolio, aims to capture the downstream demand in the coming years.
　　Automotive intelligent segment (AIS) revenue soared 60.5% Yoy to RMB12.5bn (15% of total revenue, vs. 4.3%/8.6%/10.9% /11.5% in FY21-FY24), thanks to increasing penetration in electrification and intelligence system.
　　BYDE’s infotainment systems currently support all BYD models, they continue to establish in-depth collaboration with 1st tier suppliers and OEMs, which shows their ambition to develop external clients, while also expanding their product lines into ADAS, smart cabins and other electronic parts. Though BYDE guided down FY25E revenue growth guidance from 50% to 35-40% amid China’s automotive anti-involution impact, we still glad to see BYDE’s dollar content in BYD further increased to >5k/vehicle in 1H25 (vs. ~RMB3-4k/ vehicle in FY24). We expect BYDE still have the potential to further increase dollar content through share gains and additional new order wins. Meanwhile overseas expansion would be another point to in the coming 2-3 years, as BYDE strive to tap into European clients through its current product portfolio including thermal management and active suspension system.
　　Management remains confident on product pricing and margin outlook, they still expect segment GM (currently at low teens) would still have room to expand, thanks to i) innovative product design, ii) improving product mix with higher margins (e.g. mass production and shipment of intelligent suspension system) and iii) upstream sourcing capability and production efficiency. We still expect BYDE’s AIS revenue to reach >RMB30bn/RMB40bn mark in FY25E/26E and would account for mid-teens/high-teens of total revenue.
　　We expect new intelligent and AIS revenue growth would grow at mid-high 20’s in FY25E-27E, and reach ~RMB 45bn/~55bn mark in FY25E/26E (vs. 40bn/~50bn in our last update in May 24), in which automotive revenue growth would continue to outperform, thanks to strong sales volume from BYD (took up ~80% of BYDE’s automotive revenue). We now model 29% revenue CAGR in FY22-27E on new intelligent and AIS segment and would contribute ~mid 20s/ high 20s of BYDE’s total revenue in FY25E/26E.
　　At 13.9x FY26E PE with EPS to grow ~20% CAGR in FY24-27E; Maintain BUY on diversifying business strategy well on track
　　We fine-tuned BYDE’s FY25E-27E EPS by -2.3%/-4.6%/-7.9% respectively, on lower sales and GM assumption, and our FY26E-27E net profit forecasts are 3.5%/2.9% below Bloomberg consensus. With sales and net profit expected to grow 8.8%/19.2% CAGR in FY24-27E (vs. 11.6%/22% CAGR in our last update in Apr 25), on the back of i) continued ramp
　　up/ allocation gain in components and assembly service, and share gain from Android clients; ii) Faster than company average growth in new intelligent (incl. AI server related business) and AIS would serve as BYDE’s second growth engine, which would increase BYDE’s sales and earnings visibility in the long run vs. peers. BYDE
　　continue to diversify away from smartphones related business. Despite near term share term volatility remains on news flow regarding smartphone demand recovery (esp. US client), AI server demand and auto segment, we view recent price correction would provide investors another good entry point to ride on BYDE’s earnings growth.
　　BYDE’s share price have corrected ~12% from recent high, the counter is trading at FY26E 13.9x PE (~11% discount to 5-year average), we maintain BYDE’s rating at BUY with new TP at HK$53.20, which translates to 18.0x FY26E PE (~+1 s.d. above 5-year average) , we view the target valuation is undemanding as BYDE’s strategy on diversifying business and client mix is being well executed, which still bodes well for BYDE’s re-rating story. We view BYDE’s price correction would provide another sweet point for investors.