We maintain the investment rating as "Buy" and set TP to HK$2.42. We forecast 2024-2026 EPS to be US$0.025/ US$0.034/ US$0.042, respectively. Considering future performance growth rate and historical valuation level, we give 12.5x 2024 PER, corresponding to TP of HK$2.42 and maintain the investment rating as "Buy".
FIT Hon Teng's (the “Company”) 1Q2024 results were in line with our expectations. Revenue in 1Q2024 increased 12.0% yoy to US$965 million. The gross profit margin of the Company increased by 4.5 ppts yoy to 20.3%, while gross profit increased by 44% yoy. Shareholders' net profit reached US$10 million.
TWS business for major customers in North America is expected to ramp up in 2H2024, and accelerate in 2025. The Company's first Airpods production line is in Vietnam, and has already started shipping in 1Q2024; the corresponding business is expected to account for 5%-7% of the Company’s total revenue. The Company is planning to add six more production lines in India in 2025. Thus, we expect production capacity to surge and the corresponding revenue to grow in 2025. We expect the Company’s share in Airpods will exceed 30% in the future.
We expect the Company’s earnings to recover continuously. The management expects the 2024 full year revenue to achieve a double-digit growth, while gross margin to stabilize at around 20%, and operating profit to increase significantly. The Company also wishes to control its major three operating expenses to lower than 13% in 2025 (14.4% in 2023). The Company expects that revenue mix from EV Mobility, new Generation 5G AIoT and Audio will reach 30% in 2024 and 40% in 2025. Promoted by continuous production line expansion of Airpods, synergy from acquisition of FIT Voltaira, as well as opportunities brought by AI, we expect the Company’s revenue to achieve a double-digit growth in 2024-2026, while earnings to grow faster.
Catalysts: Share in Airpods business may exceed market expectations; quicker-than-expected expansion in AI market.
Risks: More intense than expected market competition of EV mobility business; less than expected penetration of TWS products; less than expected demand for servers and storage.