4Q23 guidance remains weak; strong automotive continues to be the sustainable growth driver
- GFS’s 3Q23 revenue decreased 11% y-o-y and adjusted EPS declined 18% y-o-y, in line with the market expectations
- 4Q guidance suggests a continuous slow demand recovery in the consumer electronics segment
- Expect the aggressive overseas capacity expansion to continue to capture the sustainable growth in automotive. Maintain BUY with TP of US$79.7
3Q23 in line; 4Q23 guidance missed expectations. GFS delivered 3Q23 results that were in line with their guidance. Revenue was at US$1.85bn, inline with consensus, down 11.0% y-o-y while adjusted EPS was at US$0.55 (vs. est. US$0.50), down 18% y-o-y. Gross margin decreased 0.8ppt y-o-y to 28.6%. The earnings declined as the operating expense ratio remained at a high level as a result of higher selling, general and administrative expenses (SG&A) and restructuring cost. GFS is guiding for revenue to decline 13.6% y-o-y to c.US$1.85bn and adjusted EPS to decline 59.4% to c. US$0.59 in 4Q23, largely in line with the market expectations of US$1.858bn and US$0.60.
Increasing contributions from the automotive business to mitigate the industry weaknesses. The weak guidance suggested the rate and pace of end-market demand recovery is still slow. Meanwhile, we anticipate sustainable strong growth in the automotive business in 2024. In 3Q23 revenue grew by 219% y-o-y. We believe the automotive growth will continue to mitigate the consumer electronics weakness. We expect GFS’s aggressive overseas expansion, including Europe, to capture the robust growth of the sustainable automotive trend. We maintain BUY with a TP of US$79.70.