Buy on the expectation of the new business contribution
Buy Entry – 45 Target – 51 Stop Loss – 42
BYD Electronic International Co Ltd is an investment holding company principally engaged in the manufacture of mobile intelligent terminal components and modules. The Company with its subsidiaries mainly provides one-stop services including new material development, product design, research and development, manufacturing, supply chain management, logistics and after-sales services. Its businesses include three major parts: smartphones and personal computers (PCs), new intelligent products and automotive intelligent systems, covering molds, metals, plastic parts, glass, ceramics and electronic products. Its products are used in consumer electronics, Internet of things, smart home, smart industry, smart business, smart game equipment, smart cockpits, smart networked systems, communication modules and other fields. The Company conducts its businesses within the China market and to overseas markets such as Asia-Pacific and the United States.
The company is one of the Apple-themed stocks as it has become the original equipment manufacturer for the 2020 iPad model since last September. The recent correction was due mainly to the market expectations of Apple slashing iPhone 13 mini assembling orders.
The company is also one of the e-cigarette-themed stocks as it had registered several patents for the e-cigarette businesses in 2Q21. Previously, market news mentioned that commercial production began in June. Therefore, investors should be able to see the contribution from the new business in the upcoming earnings announcement in August.
The company initiated the diversified OEM businesses strategy which helps buffer the company against the impact of volatility in the various sector cycles. Though mobile device OEM remains the main revenue contributor, the growth of the e-cigarette market could change its revenue structure by increasing billions of RMB in the next couple of years.
Updated market consensus of the estimated growth of EPS in FY21 and FY22 are -15.5% and 28.8% respectively, which translates to 18.9 and 14.7x forward PE. The current PE is 16.1x. Bloomberg consensus average 12-month target price is HK$54.65.