FIT Hon Teng’s 2Q25 results were largely in-line with our expectations, with revenue/net profit growth of 9%/13% YoY (vs +14%/-39% YoY in 1Q25).
　　Following our post-results NDR with mgmt., we are encouraged by FIT’s accelerated business transition in 2Q, as strategic cloud/auto segments accounted for 36% of 2Q sales (vs 24% in FY24) and delivered strong growth of 28%/115% YoY in 2Q. Despite guidance lowered on smartphone/consumer interconnect/system products on tariff/macro uncertainties, we are positive on FIT’s “3+3 strategy” into 2026-27E, backed by 1) cloud/AI server products (project wins in sockets/CPO; share gains in power /liquid cooling), and 2) AirPods ramp-up (2-3 lines by FY25E, 6 lines as LT target). We trim our FY25- 27E EPS estimates by 5-15% to reflect 1H25 results, new guidance and project wins in 2026. Trading at 20.1x/13.6x FY25/ 26E P/E, the stock is attractive in our view. Maintain BUY with new TP of HK$4.96 based on rollover 16x FY26E P/E (vs prior 14.2x FY25E P/E), in-line with 8-yr avg. P/E.
　　2Q25 review: upbeat cloud/auto offset by softer smartphone/system
　　products. FIT’s 2Q25 revenue growth of 9% YoY was largely in-line, mainly driven by 1) cloud (AI server) rapid growth (+28% YoY) on AI demand and project wins, 2) consumer interconnects (computing) strong growth (+16% YoY) on CPU upgrade and PC demand, and 3) auto biz growth (+115% YoY) on AK deal consolidation, while smartphone/system product segments were weaker at -18%/-19% YoY. 2Q GPM came in at 17.8%, down 2.6ppts YoY, due to tariff impact, FX headwinds and product mix change. 2Q net profit grew 13% YoY (vs -39% YoY in 1Q), given solid sales and gains from associates (vs loss in 1H24) offset by higher effective tax.
　　2H25E/FY26E outlook: AI server order wins (sockets/CPO/power/liquid cooling) and AirPods capacity ramp-up. For FY25E guidance, mgmt.
　　reiterated sales growth for cloud/auto (i.e. mid-double digits), but lowered sales growth for smartphones/consumer interconnects/system products to - 15%/+0-5%/-5-15% (vs prior -5-15%/+5-15%/+0-5%) due to tariff impact on supply chain and macro uncertainty. Overall, we expect AI server order wins (MCIOs, new sockets, power busbar, liquid cooling UQD), AirPods capacity and auto consolidation to drive earnings growth in 2H25/FY26E.
　　Catalysts: AI server (liquid cooling/power) ramp-up, AirPods updates.
　　We believe recent stock rally (+52% in 1 month) reflected positive market sentiment on liquid cooling/thermal opportunities in AI servers. We have adjusted our earnings forecasts to factor in 1H25 results, new guidance and project wins in 2026. Our new TP of HK$4.96 is based on rollover 16x FY26E P/E (vs prior 14.2x FY25E), in-line with 8-yr avg. P/E. Reiterate BUY