Morgan Stanley Maintains Overweight on FIT Hon Teng with HK$12 Target Price

Overview

This report summarizes Morgan Stanley's feedback from discussions with FIT Hon Teng Precision (6088.HK) management at the 2026 Asia AI Summit. Key conclusion is maintaining 'Overweight' rating with target price raised to HK$12.00. Management provided positive revenue growth guidance and emphasized competitive advantages in AI server power solutions, particularly market share gains and value doubling in the new Vera Rubin platform. Additionally, the company shows promising growth potential in optical connectivity and automotive electronics.

Core views

Revenue Growth & Business Structure Optimization: Management guides for low double-digit percentage revenue growth in FY2026, accelerating to mid-high double-digit in FY2027-28. Cloud/Data Center business mix is expected to reach mid-20% in 2026, increasing to early 30% by 2028, indicating accelerated transition toward high-growth AI infrastructure. Value Leap in AI Server Power Solutions: In AI servers, FIT Hon Teng's revenue growth is driven equally (50% each) by data interconnect and power solutions, with limited contribution from liquid cooling components (e.g., CDU QD). Key highlight is that compared to only supplying in-tray power busbars for Grace Blackwell (GB) platform, the company may gain more rack-level power solution share in Vera Rubin (VR) platform. Management notes per rack dollar value of power solutions could double from GB to VR. Typically, FIT's AI server rack component shipments lead full rack shipments by 3-6 months, serving as a performance leading indicator. Emerging Technologies & Automotive Opportunities: In optical connectivity, the ELSFP (External Laser Small Form-factor Pluggable) solution remains under certification with mass production expected in 2027, featuring above-average gross margins. For connectors, FIT is the first supplier producing SOCAMM connectors for Samsung and one of NVIDIA's SOCAMM suppliers. In automotive, demand from some European brands shows recovery signs in both volume and pricing, helping offset weakness elsewhere.

Analysis framework

The analysis combines top-down and bottom-up approaches. First, meeting minutes capture management's qualitative guidance on mid-long term revenue growth and business structure changes to establish growth基调. Second, deep dive into AI server technology evolution (GB to VR platforms) quantitatively analyzes content per rack changes from upgrades—key for profit elasticity assessment. Finally, integrating new product (ELSFP, SOCAMM) timelines and traditional business (automotive) cycle recovery provides comprehensive evaluation of multi-dimensional growth drivers.

Methodology notes

• Valuation MethodRIM Residual Income Model

  Residual Income Model

  The report uses Residual Income Model for valuation, focusing on excess returns above capital costs. Here, analysts assume 6.3% cost of equity, 10% mid-term growth, and 3% terminal growth to derive base case value.

• Industry Analysis FrameworkVolume-Price Breakdown

  Content per Rack Analysis

  Analyzes how AI server platform evolution (GB to VR) doubles per rack power solution value to predict revenue growth quality and technical barriers, beyond relying solely on shipment growth.

• Industry Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Supply Chain Shipment Rhythm

  Notes that component shipments typically lead full rack shipments by 3-6 months—an industry norm helping investors anticipate downstream server manufacturers' demand changes via component orders.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• FIT Hon Teng Ltd (6088.HK)

  Direct beneficiary as core supplier of AI server power & connectivity solutions

  Strengths

  Gaining rack-level power solution share in Vera Rubin platform with doubled per rack value; SOCAMM connector first-mover advantage; ELSFP optical module's high gross margin potential

  Weaknesses

  Limited current contribution from liquid cooling components; smartphone & systems segment underperformance could drag overall results

  Comparison

  Versus pure assembly players, possesses higher-barrier power & connectivity technologies commanding valuation premium

  Risks

  Slower-than-expected AI hardware technology migration; market share gains fall short

Key data

• 2026 Revenue Growth GuidanceLow double-digit %YoY
• 2027-28 Revenue Growth GuidanceMid-high double-digit %YoY
• Cloud/Data Center Business Mix (2026E)Mid-20%Estimate
• Cloud/Data Center Business Mix (2028E)Early 30%Estimate
• VR Platform Power per Rack Value ChangeDoublesVs. GB platform
• ELSFP Mass Production Timeline2027Maintains prior guidance
• Target PriceHK$12.00Implies 35% upside from current price

Impact & implications

The report views FIT Hon Teng as transitioning from traditional consumer electronics OEM to high-value AI infrastructure component supplier. Vera Rubin platform adoption will simultaneously increase market share and per rack value in power management, significantly improving profit structure and valuation. Meanwhile, potential breakthroughs in optical connectivity and automotive recovery provide additional margin of safety and growth options.

Risks

• Smartphone & systems segment revenue below expectations
• Slower-than-expected AI hardware technology migration and market share gains

What to watch

• Actual shipment volumes and share changes for Vera Rubin platform power solutions
• ELSFP optical module certification progress and 2027 mass production execution
• Whether Cloud/Data Center business mix reaches guided mid-20% level