CMB International: Maintains a "buy" rating for FIT Hon Teng (06088) with a target price of HK$4.38.

China International released a research report stating that it maintains a "buy" rating on FIT HON TENG (06088), raising its FY25/26E EPS forecast by 3%/5% to reflect the 3Q24 performance and very positive performance guidance, with a new target price of HK$4.38 (previously: HK$4.25). Recent stock price drivers for the company include: progress in the validation of the GB200 AI server new SKU, construction of AirPods production lines in India, and the completion and progress of the Auto-Kabel acquisition. FIT HON TENG announced its 3Q24 performance, with revenue/net profit increasing by 1% and 24% respectively compared to the same period last year, broadly in line with the company's previous guidance. The company held an investor performance briefing yesterday morning, during which it disclosed the company's performance guidance for the next three years (FY25-27E), mainly involving a three-year revenue CAGR of 20% for FY25-27E, as well as GPM and OPM reaching 22% and 8% respectively by 2027, expressing management's confidence in the company's continued revenue growth and profit margin expansion. Market investors reacted positively to the guidance given by the company at the performance briefing. Specifically, FIT HON TENG's 3Q24 performance met expectations, with a significant increase in net profit margin. The consumer electronics main business reflected the impact of the weaker market environment, but revenue from AI server interconnection products saw a significant increase. The quarterly gross margin was 21.7%, showing a significant increase from the previous quarter, but a slight decrease year-on-year, mainly due to the weaker performance of high-margin automotive electronics business affected by market conditions. The core operating profit margin for the quarter reached 8.2% (compared to 2.5%/4.1% for 1Q/2Q24), showing a significant improvement, mainly due to the company's proactive efficiency management, cost reduction, and effective expense control. Looking ahead to 4Q24/FY24, the company's management broadly maintained the full-year performance guidance previously given, with only a slight adjustment to the full-year OPM target to 4.5%, mainly due to the pressure on operating profit margin in the first half of the year. The bank expects the company's FY24 revenue/net profit to increase by 9%/43% compared to the previous year. Looking ahead to the next three years, the company's management has provided performance guidance for FY25-27E, with a three-year revenue CAGR of 20%, and GPM and OPM reaching 22% and 8% respectively by 2027, mainly driven by customer and order penetration of AI server-related products, the acquisition and consolidation of Auto-Kabel Group, and the expansion of AirPods production capacity in India by large customers. The company will continue to deepen its development in the "3+3 strategy" direction of 5G & AioT, EV, and acoustics. In terms of AI server-related products, the company's supplied AI server-related connector products have started shipping, and CDU liquid cooling quick connectors and power busbar products can be seen starting delivery in 4Q24. In the EV business, the Auto-Kabel acquisition is progressing towards completion, and a significant revenue contribution is expected in FY25. In the AirPods business, the progress of the construction of production lines in India is in line with expectations, and production ramp-up is expected to be seen early next year.