Luxshare Earnings: Shares Cheap on Improved Auto and Communication Prospects

We reduce our fair value estimate for Luxshare Precision to CNY 41.50 per share from CNY 47 after baking in more conservative consumer electronics growth, partially offset by higher long-term revenue in the automotive and communication segments. Shares of the company look attractive as it is more likely to benefit from faster transmission speeds of servers and outperforming electric vehicle growth by offering a wider range of components. We think the market is overly bearish on the dilutive effects of Luxshare’s assembly business on gross margin as such effects will dwindle as automotive and communication contributions grow (both segments’ gross margins are estimated at 20%).