Macquarie Upgrades BYD Electronic on AI Infrastructure Outlook

Macquarie Securities upgraded BYD Electronic ("the Company") to Outperform from Underperform on 1 September 2026, citing an anticipated earnings recovery from the second half of 2026 driven by server manufacturing and liquid‑cooling businesses. The brokerage simultaneously increased its 12‑month target price by 18% to HK$29.22, up from HK$24.70.

The Company reported a weak first‑half performance, with revenue rising 2% year‑on‑year to ¥82.2 billion, while net profit fell 75.4% to ¥426 million. Macquarie attributed the profit decline to weakness in smart‑terminal components, product‑specification changes at major overseas customers, foreign‑exchange losses, and heavy upfront investment in AI infrastructure.

Growth Drivers

  • AI Infrastructure: Management projects server revenue of ¥3‑5 billion in 2026 and liquid‑cooling revenue of ¥300‑500 million. Macquarie forecasts AI‑infrastructure revenue of ¥3.7 billion in 2026 and ¥6.6 billion in 2027. Server deliveries to one of China’s top three internet companies are expected to commence in Q4 2026, with server gross margins potentially reaching double‑digit percentages.
  • Liquid‑Cooling: Volume production of liquid‑cooling products for next‑generation Vera Rubin systems is slated to start in September, with additional projects moving to mass production around December.
  • Automotive (NEV) Components: NEV component revenue grew 6.4% in H1, supported by intelligent suspension, flash charging, and overseas demand. Macquarie expects a 37% YoY increase in H2 as vehicle sales recover and the Company gains supply‑chain share.
  • Smart Terminals: Smart‑terminal component revenue fell ≈13% in H1 due to specification changes at an overseas flagship customer. The brokerage projects a 5% decline in H2, but anticipates that Android flagship launches from September to November will improve utilisation and fourth‑quarter profitability.

Profit Forecasts

  • Net profit is projected to rise 83% YoY in 2027, driven by data‑centre momentum, steady EV growth, and upgrades in smartphone casing materials.
  • Macquarie cut the 2026 net‑profit forecast by 33% and reduced the 2027 forecast by 1% because of lower expected gross margins, while raising the 2028 estimate by 4% on the basis of lower operating expenses.

Valuation

The new target price of HK$29.22 is derived from a sum‑of‑the‑parts valuation applying:

  • 12× 2027 earnings to smart‑terminal business,
  • 15× to NEV components,
  • 25× to AI computing infrastructure.

At the Company’s closing price of HK$24.76 on 28 August 2026, the target implies an expected total shareholder return of 18.6%.

Catalysts & Risks

Key catalysts identified are the September iPhone launch and the Company’s third‑quarter results. Risks highlighted include weaker‑than‑expected iPhone and iPad sales, the Company’s reliance on BYD for roughly 80% of its NEV component business, and a potential slowdown in Chinese AI capital spending.