BYD Electronic: Initiating Coverage With No-Moat Rating and HKD 30 Fair Value Estimate

We initiate coverage of BYD Electronic, a precision parts manufacturer and device assembler, with a fair value estimate of HKD 30, which corresponds to 12.8 times 2024 price/earnings. We assign the company a no economic moat rating and Standard Morningstar Capital Allocation Rating. We think that BYDE is fairly valued and solid revenue expansion into assembling higher-value products such as iPhones and automobile electronics, and the overall recovery in demand for Android smartphones and iPads are all priced in. Its acquisition of Jabil Mobility allows the company to deepen its long-term relationship with Apple and we believe it may begin to assemble some lower-end iPhones in 2025. Meanwhile, we caution that the profitability of assembly services is vulnerable to intense price competition, which puts pressure on its overall profit margins.