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Summary of FIT Hon Teng Limited (6088 HK) Report

Core Content

FIT Hon Teng Limited is a leading interconnect product manufacturer, ranked 4th globally in the US$57bn connector market with a 10.4% market share in Greater China and 5.1% globally in 2016. The company is a subsidiary of Hon Hai Precision Industry, leveraging its strong relationship with the parent company to secure a premium client base and robust R&D capabilities.

Main Viewpoints

• Global Leadership and Market Position:
  FIT is a global No.4 connector leader with a diversified portfolio covering PC, mobile, communication infrastructure, and emerging markets such as electric vehicles (EVs) and Internet of Things (IoT). Its strong presence in PC and mobile connector markets (global No.1 and No.2 respectively) positions it well for growth.

• Key Growth Drivers:

  • Communication Infrastructure:
    FIT's acquisition of Avago's optical module business in 2015 has significantly enhanced its position in the high-margin communication infrastructure segment, which is expected to grow at 21.5% CAGR during FY16–19E. This growth is fueled by data center expansion, cloud computing, and the copper-to-fiber transition.
  • USB Type-C Transition:
    The adoption of USB Type-C in PCs, smartphones, and tablets is expected to drive 13% CAGR in FIT's mobile segment and 5% CAGR in the computer segment. The symmetric/reversible design, high-speed data transfer, and fast charging capabilities of USB Type-C make it a key technology driver.
  • Emerging Markets (EVs & IoT):
    FIT is well-positioned to benefit from the EV charging solutions and IoT expansion, with an estimated 87% CAGR in the automotive segment and volume/content growth potential from IoT applications.

Key Financial Highlights

Investment Thesis

• Buy Recommendation:
  The report initiates with a BUY rating, targeting a HK$5.2 price target based on a 16.4x FY18E P/E. This aligns with FIT's global connector peers and HK-listed component peers.
• Near-term Catalysts:
  The 1H17 results and the iPhone 8 launch are expected to be key drivers for near-term performance.
• Key Risks:
  Potential slower-than-expected USB Type-C adoption, continued PC demand slowdown, and Avago's business integration challenges are identified as key risks.

Segment Growth Projections

Market Opportunities and Trends

• Communication Infrastructure:
  The market is expected to grow at 8.6% CAGR during FY16–21E, driven by data center expansion, cloud computing, and the transition from copper to fiber optics.
• USB Type-C:
  Global adoption is expected to rise from 5% in FY15 to 80% in FY21E, boosting demand for Type-C connectors and accessories.
• EVs and IoT:
  FIT is set to benefit from the expansion of EV charging solutions and connector applications in IoT, with increased volume and content growth potential.

Strategic M&A and Product Diversification

• FIT has expanded its product portfolio through acquisitions, including Avago's optical module business, enhancing its position in high-end communication infrastructure.
• The company is also expanding into mobile accessories, including USB Type-C adaptors, wireless charging, and earphones, with a projected 19% CAGR in this segment.

Conclusion

FIT Hon Teng Limited is well-positioned to benefit from global connector market growth, USB Type-C adoption, and emerging opportunities in EVs and IoT. The company's diversified product portfolio, strong R&D capabilities, and strategic M&A support its 15% / 23% CAGR in revenue and net profit during FY16–19E.