UBS Securities International has initiated coverage on FIT HON TENG (06088) with a "Buy" rating and a target price of HK$6.6, stating that 2025 marks the first year of the company's business transformation. The report highlights the company's accelerated deployment in high value-added products such as AI server connectivity, optical modules, and automotive high-voltage connectors. Optimization of the product mix is expected to drive a recovery in gross margin, with high-margin related businesses projected to see significant volume growth in 2026, consequently lifting the company's valuation core. The key views from UBS Securities International are outlined below.
Recent developments show that FIT HON TENG's Q3 2025 revenue achieved double-digit growth, exceeding the high single-digit guidance, with revenue increasing 13% year-on-year to US$1.3 billion, driven by demand for AI products. By segment, a significant surge in demand for AI connectivity solutions propelled the Cloud & Networking Infrastructure business revenue growth of 33.5% to US$215 million. The Smartphone segment, affected by market challenges and module replacement, saw Q3 revenue decline 20.2% year-on-year to US$210 million, consistent with guidance. Revenue from the Computer & Consumer Electronics segment remained flat at US$221 million, exceeding guidance due to flexible fulfillment of customer demand. The Automotive & Mobility segment, advancing its integration strategy, reported a 116% year-on-year revenue increase to US$240 million. The System Products segment benefited from a rebound in consumer demand, with revenue growing 3% year-on-year to US$382 million, surpassing prior guidance. The Q3 2025 gross margin reached 23.5%, reversing the downtrend from the first half and contributing to a 3% year-on-year increase in net profit for the first nine months of 2025 to US$105 million.
The company is continuously expanding its business boundaries, focusing on a "3+3" strategy. FIT HON TENG is a global leader in precision interconnect technologies under the Hon Hai Group (Foxconn). Starting with connector manufacturing, the company has evolved to cover end products including smartphones, communication infrastructure, computers and consumer electronics, electric vehicles, and TWS earphones. It possesses three core competencies: "design and manufacturing of precision components, connectivity application solutions, and large-scale vertical integration capabilities." The company proposed its "3+3" strategy in 2021, focusing on three key areas—5G/AIoT, Audio, and EV—and developing three core technologies: "copper to optics, wired to wireless, and components to system products," to unlock new growth drivers.
The medium to long-term earnings outlook is enhancing the company's valuation. FIT HON TENG is currently at a critical juncture for a shift in its valuation framework. The market has long viewed it as a traditional "consumer electronics assembly/cable manufacturer." However, with substantial breakthroughs in its AI server interconnect (backplanes, copper cables, liquid cooling) and electric vehicle businesses, its revenue structure is transitioning towards that of a higher-margin, higher-barrier "connector and core component manufacturer." The progress in customer certification and mass production of high-margin new products, such as optical modules, CPO (co-packaged optics) technology, and automotive high-voltage connectors, will be crucial for optimizing the product mix and driving sustained improvement in the overall gross margin.
Risk factors include geopolitical and tariff risks; AI demand falling short of expectations; and intensifying industry competition.
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