20230316-招银国际-FIT_HON_TENG-06088.HK-Recent_correction_overdone__Investment_to_accelerate__3+3_strategy__transition_7页_1mb

FIT Hon Teng (6088 HK) Summary

Core Content

FIT Hon Teng, a leading electronics manufacturing services (EMS) company, has been reviewed in terms of its financial performance, strategic initiatives, and valuation. The company is currently rated BUY with a new target price of HK$2.46, which is based on a 11x FY24E P/E multiple, 33% below the 5-year historical average. The report highlights the company's "3+3 Strategy" for global expansion and strategic business development, despite a softer FY23E.

Main Points

• FY22 Performance: FIT Hon Teng's FY22 revenue and net profit were US$4,531 million and US$170 million, respectively, in-line with expectations. The gross margin improved to 16.9%, driven by expansion into higher-margin product categories.
• Segment Growth: Computing, EV Mobility, and System Products showed strong growth of 2%, 10%, and 20% YoY, respectively, despite a decline in Networking due to the exit of optical module products.
• Strategic Investment: FIT announced a US$800 million Capex plan for FY23E, significantly higher than previous years. This investment focuses on global manufacturing expansion and the development of strategic business areas such as EV and audio products.
• Growth Outlook: The report expects the "3+3 Strategy" to increase revenue contribution from 24% in FY22 to 30% in FY23E and 40% in FY25E, indicating a shift towards higher-margin products.
• Earnings Revision: CMBIGM has revised its earnings estimates downward for FY23E and FY24E, but expects growth in FY25E. The net profit for FY23E is estimated at US$160.5 million, with a -25% revision from the previous estimate.
• Valuation: The stock is currently trading at 10.1x FY23E P/E and 8.1x FY24E P/E, with a 35.2% upside to the new target price. The report suggests the valuation is attractive given the expected recovery and growth.
• Catalysts: Upcoming catalysts include the Prettl acquisition progress, audio product order wins, and EV business expansion.
• Shareholding: The company is majority-owned by Foxconn Far East Ltd at 71.2%, with Lu Sung-Ching holding 5.9%.
• Stock Performance: Over the past 12 months, the stock has seen a 59.6% increase in absolute terms and 54.7% relative to the market.

Key Financial Metrics

Strategic Focus

• The "3+3 Strategy" aims to increase revenue from strategic products to 30% in FY23E and 40% in FY25E.
• EV and Audio Products: These are key growth drivers, with the EV business expected to grow significantly in FY23E and beyond.
• Prettl Acquisition: Progress on this acquisition is a key upcoming catalyst for the company.
• Global Expansion: The company is expanding its global manufacturing footprint to capture new opportunities in the TWS and EV markets.

Investment Recommendation

• Maintain BUY rating.
• New TP of HK$2.46 based on 11x FY24E P/E.
• The stock has slumped over 10% post-earnings due to soft guidance, but the positive outlook on EV and audio client wins suggests accumulation on recent weakness.

Valuation Comparison

Risk and Reward

• The report believes the risk-reward is attractive, with the current valuation offering potential upside.
• Short-term pressure on profitability is expected due to increased investments, but long-term growth is anticipated.
• The stock is undervalued compared to historical averages and industry peers, suggesting a buy opportunity.

Analyst Information

• Alex NG: (852) 3900 0881, alexng@cmbi.com.hk
• Lily YANG, Ph.D: (852) 3916 3716, lilyyang@cmbi.com.hk
• Claudia LIU: claudialiu@cmbi.com.hk

Conclusion

FIT Hon Teng is positioned for long-term growth through its strategic investment in the EV and audio sectors, despite short-term challenges in profitability. The positive outlook and attractive valuation support the BUY recommendation, with the new target price reflecting the potential for recovery and growth. Investors are encouraged to accumulate on the recent weakness.