CMSC: Maintains "strong buy" rating on TIME INTERCON (01729) with first half performance far exceeding expectations.

CMSC released a research report stating that it maintains a "strong buy" rating for TIME INTERCON (01729). Considering the significantly better-than-expected performance in H1, high demand for data centers and server markets, and better-than-expected profitability of Laini, the bank raised its total revenue for 2026/2027/2028 to HKD 21 billion / HKD 31.8 billion / HKD 46.6 billion, net profit of HKD 1.85 billion / HKD 2.81 billion / HKD 4.07 billion, corresponding to PE ratios of 16.8 / 11.1 / 7.6 times. The bank continues to be optimistic about the high-speed growth of AI computing power business, as well as the second and third-stage growth curves of the automotive and medical businesses, with significant upside potential at current low levels. The main points of CMSC are as follows: H1 profit is expected to increase significantly by 150-170% year-on-year, far exceeding market expectations, mainly due to contributions from MPO, servers, and Laini cable. TIME INTERCON released a performance pre-announcement, with expected profit in the first half of the year increasing by approximately 150-170% year-on-year. The estimated profit for H1 is HKD 785-848 million (far exceeding the market's expectation of HKD 600 million), representing a quarter-on-quarter growth of approximately 67%-80%. The bank believes that the significant increase is mainly due to: 1) MPO business: significant increase in profit from data center revenue in the wire and cable division (MPO mainly, with data center revenue of HKD 9.4 billion / HKD 8.7 billion in the previous H1/H2), driven by strong demand from G clients for MPO, leading to a significant increase in orders since April and near full capacity utilization since May; 2) Servers: significant increase in revenue and profit from server business due to accelerated construction of AI servers by domestic CSP clients (server revenue of HKD 25.6 billion / HKD 48.4 billion in the previous H1/H2); 3) Improved profit margin of joint venture company (Laini cable) with increased contribution from investment income. Multiple growth opportunities in computing power business, including MPO, servers, Shuffle Box, power cables, and high-speed copper cables. In terms of MPO's core business, 1) with regard to G clients, the company is the leading supplier of MPO products, and with a reserve of SN-MT products, it fully benefits from the upward revision of CAPEX guidelines and future trends of high-density upgrades. The company's order growth is strong, current capacity utilization is near full, and it is expected that the company will actively respond to demand expansion through double shifts, further opening up capacity elasticity and maintaining high-speed growth in the MPO business; 2) with regard to incremental clients, the company is actively expanding new overseas clients, while capacity planning in North America and Europe is accelerating. With advantages in automation and global supply, the bank believes that breaking through new clients has the potential beyond expectations. As for servers, AI server business is entering a high-volume period with top domestic cloud vendors. In addition, Shuffle Box, power cables, and high-speed copper cables in the computing power business also have growth opportunities. Automotive and medical businesses are on the second and third-stage growth curves in the future. In the automotive sector, the integration effect of Laini exceeds expectations, benefiting from the automation and intelligence empowerment of Luxshare, coupled with the introduction of new clients domestically and internationally. The bank expects future revenue and profit margin levels to continue to improve. The medical business will benefit in the medium to long term from the increasing demand in the medical equipment connectivity market brought by aging and upgrading health awareness. At the same time, active investments in medical wearables and other cutting-edge technology areas will open up growth space through internal and external expansion. TIME INTERCON is an important part of the Luxshare system. Outstanding positioning in the data communication business, such as MPO optical communication, AI servers, etc., will maintain high-quality growth; the automotive business benefits from the successful acquisition of Laini cables, aiming to quickly rise to the global top automotive cable supplier; the medical equipment business presents a long and steady growth pattern, actively planning in cutting-edge fields, combined with the enabling synergy of the Luxshare system, the convergence of data communication + automotive + medical three drivers pulling long-term development. Currently, the convergence is significantly undervalued compared to A/H comparable companies, representing a long-term alpha combination of the three swords of China Merchants Electronics and Luxshare. Risk Warning Risks of unexpected delays in computing construction, fluctuations in raw material prices, labor cost risks, macroeconomic risks.