FIT Hon Teng reported 1H26 interim results. Revenue of USD2.50bn (+8.3% YoY) missed Bloomberg consensus by 2%. Strong growth in the cloud and networking infrastructure business was offset by pressure on consumer electronics interconnects and automotive mobility. On the profitability front, gross margin was 19.1% (+0.54pp YoY) and attributable NP was USD38mn (+20.9% YoY). The 1H26 operating margin was about 3%, missing Bloomberg consensus by 1.24pp, mainly due to learning-curve costs associated with the ramp-up of new production lines for next-generation AI products and rising raw material prices. In 2Q26, revenue came in at USD1.30bn (+8.0% YoY), with gross margin of 18.0% (+0.2pp YoY, but down 2.3pp QoQ) and net profit of USD28mn (+15.7% YoY). During the earnings call, the company maintained its 2026 guidance for high-single-digit (HSD) YoY revenue growth, 20% gross margin, and approx. 70% YoY growth in operating profit. It also guided for roughly 70% YoY full-year revenue growth for the cloud data center business. Management noted that 800G and 1.6T optical modules are expected to begin contributing revenue in 2H26. We believe AI demand will drive expansion within the high-speed optical interconnect market, potentially unlocking growth in 2027. We maintain our BUY rating and target price of HKD6.30.
Maintain BUY with TP unchanged at HKD6.30
We slightly revise up our 2026-2028 attributable NP forecasts by 4%, 2%, and 2% to USD200mn, USD250mn, and USD280mn, respectively. This is primarily driven by upward revisions to cloud and networking infrastructure revenue and expense ratio optimization, though largely offset by downward revisions to system products and auto mobility revenue. Considering that 2026 remains a volume ramp-up phase for new AI products, we roll over our valuation base year to 2027. Furthermore, the company's integrated AI connectivity platform—encompassing "copper connections + optical interconnects + power supply + liquid cooling"—is poised to unlock medium-to-long-term growth potential. We maintain our target price of HKD6.30, implying 23.8x 2027E PE (vs the comparable peer average of 16.6x FY27E PE). This premium reflects the company's competitive edge in its AI interconnect product matrix and the expected continued rise in the revenue mix of its cloud and networking infrastructure business. The assumed HKD/USD exchange rate is 0.13. Maintain BUY.
Risks: slower-than-expected development in high-margin businesses, slower-than-expected ramp-up and yield improvement of new AI production lines, higher-than-expected raw material price hikes, intensifying Sino-US trade frictions, uncertainties in managing new overseas capacity.