Luxshare Precision's AI Server Volume Growth Imminent, Target Price Raised to 86 Yuan

Overview

This report is Bernstein's deep-dive update on Luxshare Precision. Since the last in-depth coverage in 2024, Luxshare Precision has successfully absorbed the impact of tariffs, completed acquisitions of Leoni (automotive wiring harnesses) and Wintech ODM (consumer electronics), and achieved initial success in overseas AI server component markets. The report focuses on Luxshare's growth potential in the telecommunications sector (especially AI servers), viewing it as transitioning from a fruit-chain supplier to a diversified, platform-based manufacturing giant. Based on breakthroughs in the AI server business and accelerating EPS growth, Bernstein raises the target price to 86 yuan while maintaining an outperform rating.

Core views

Telecommunications Business (the Core Growth Engine for AI Servers): Luxshare's telecommunications business covers copper connections, optical modules, thermal management, and server assembly. Of the approximately 24 billion yuan in telecommunications revenue in 2025, 40% comes from server components (mainly copper connections). Benefiting from demand for copper connectors driven by the GB300/Vera Rubin cycle and the ramp-up of 1.6T optical modules, this segment is expected to achieve a compound annual growth rate of over 40% by 2028. In terms of optical modules, Luxshare, leveraging its automated production line advantages, though a latecomer, has gained high customer recognition. It is expected to ship 2 million 1.6T optical modules next year, contributing about 12 billion yuan in revenue. The telecommunications business boasts high double-digit net profit margins and is projected to account for a double-digit percentage of group revenue and around 25% of net profit by 2028. Automotive Business (Driven by External M&A): The acquisition of Leoni in July 2025 strengthened its capabilities in automotive wiring harnesses and connectors. Leoni reached breakeven in the second half of 2025 ahead of schedule, and its net profit margin is expected to reach 5% by 2028, contributing about 10% of Luxshare's revenue and 5% of its net profit. Luxshare's own automotive business remains strong, with an annual growth rate of 35-40%. Combined with Leoni, the overall automotive segment is expected to grow at a CAGR of 36% from 2025 to 2028, reaching 99 billion yuan by 2028. Consumer Electronics Business (De-Appleization and Structural Optimization): Despite memory cost pressures, Apple's demand remains resilient. Through the integration of Wintech ODM and expansion into the PC ODM market, non-Apple consumer electronics revenue is expected to grow at a CAGR of 16%, reaching about 126 billion yuan by 2028 (accounting for roughly 40% of the consumer electronics segment). Apple-related business will maintain a moderate revenue CAGR of 3%. iPhone assembly profit margins continue to improve, expected to contribute nearly 5 billion yuan in net profit by 2027. Overall Financial Forecast and Valuation: Combining all segments, Luxshare's revenue is expected to grow at a CAGR of about 14% from 2025 to 2028, with EPS growing at a CAGR of about 26%. Gross margin is projected to rise by about one percentage point to 13.2% by 2028, driven by the higher contribution from servers and automobiles, and ROE is expected to remain above 20% (reaching 24% by 2028). Based on the progress in AI servers and accelerating EPS growth, the valuation multiple is raised from 22x to 25x, applied to the 2027 EPS forecast of 3.5 yuan, resulting in a new target price of 86 yuan.

Analysis framework

The report adopts a bottom-up segment valuation and sum-of-the-parts (SOTP) approach to analyze Luxshare. First, each business segment (telecommunications, automotive, consumer electronics) is analyzed separately to identify growth drivers and profitability paths: For the telecommunications segment, growth rates and gross margin improvements are forecasted based on product lines (copper, optics, thermal management) and customer demand (GB300/Vera Rubin cycle); for the automotive segment, the synergies and profit contributions are evaluated by dissecting the holding structure acquired from Leoni and the impact of minority shareholders' equity; for the consumer electronics segment, the Apple and non-Apple paths are differentiated, and profit trends are extrapolated through ODM market shares and iPhone assembly profit-sharing arrangements (Lizhen). Finally, financial forecasts from each segment are aggregated into three financial statements to derive the overall EPS forecast and, combined with PE valuation methods, arrive at the target price. The report emphasizes verifying growth logic through micro-level milestones such as product cycles and capacity ramp-ups, helping readers understand the key highlights of manufacturing companies during their business transformation periods.

Methodology notes

• Valuation MethodPE/PEG valuation

  Price-to-Earnings (P/E) Valuation

  Based on Luxshare's progress in AI server components and accelerating EPS growth, the report believes there is room for valuation multiples to rise, raising the target P/E from 22x to 25x and applying it to the 2027 EPS forecast of 3.5 yuan to arrive at the target price. This valuation method is suitable for stocks with strong growth certainty and clear valuation revaluation logic.

• Valuation MethodSOTP Segment Valuation

  Sum-of-the-Parts (SOTP) Valuation

  Luxshare's business spans consumer electronics, telecommunications, and automotive. The report forecasts revenue and profit contributions for each business segment separately and then aggregates them into an overall valuation. This method is suitable for companies with diversified businesses and significant differences in growth rates across segments, clearly illustrating how the second growth curve contributes to overall value.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Operating Leverage and Margin Expansion

  The report points out that the rising proportion of high-margin components such as servers and automobiles will drive up the overall gross margin, reflecting the effect of operating leverage: the growth in sales of high-margin products not only boosts revenue but also dilutes fixed costs through economies of scale, leading to disproportionate margin expansion.

Asset mapping & comparison

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

• Luxshare Precision (002475.SS)

  Core covered stock in the report, benefiting from breakthroughs in the AI server business and valuation reevaluation

  Strengths

  Diversified business layout reduces dependence on single customers; possesses automation production line advantages in copper connections and optical modules, with high customer recognition; strong M&A integration capabilities

  Weaknesses

  Some businesses (such as WSD) still face dilution from minority shareholders' equity; relatively late entry into the optical module field

  Comparison

  Its P/E valuation relative to the CSI 300 is not extremely high, leaving room for reevaluation

  Risks

  iPhone replacement cycle weaker than expected; slower-than-expected growth in key AI server product shares; margin pressure from new product ramp-ups; memory price shocks

Key data

• Target Price86.00 CNYRaised from 74 yuan, based on a 25x P/E multiple applied to the 2027 EPS of 3.5 yuan
• 2025-2028 Revenue CAGR14%Driven by growth in AI servers and automotive business
• 2025-2028 EPS CAGR26%EPS growth significantly exceeds revenue growth, reflecting improved profitability
• 2028 Telecommunications Business Net Profit MarginLow Double DigitsExpected to contribute around 25% of the group's net profit by 2028
• Apple Revenue ShareAbout 40%Projected to drop to around 40% by 2028 (compared to 74% in 2021 and about 57% in 2025)
• 2027 1.6T Optical Module Shipment Forecast2 million unitsExpected to contribute about 12 billion yuan in revenue, accounting for nearly 3% of company revenue
• 2028 Automotive Business Revenue99 billion yuanIncluding Leoni, with a CAGR of about 36% from 2025 to 2028

Impact & implications

The report views Luxshare Precision as at a critical turning point in its transition from the Apple supply chain toward AI servers and automotive electronics. Breakthroughs in AI server components are expected to trigger a valuation reevaluation. Its diversified business strategy effectively reduces dependency on single customers, and with the release of profits from new businesses, the company's ROE is expected to remain consistently high above 20%. In the short term, Apple's Worldwide Developers Conference, progress in optical modules and copper cables, and the launch of OpenAI consumer devices will serve as important sentiment catalysts.

Risks

• Weaker-than-expected iPhone 18 replacement cycle
• Slower-than-expected growth in key AI server product shares
• Margin pressure from new product ramp-ups or competition exceeding expectations
• Memory price hikes causing higher-than-expected cost impacts

What to watch

• Progress at Apple's Worldwide Developers Conference (WWDC)
• Progress in copper cable components and optical module business
• Launch of OpenAI consumer devices and their supply chain impact
• Luxshare's market share gains in AI server components
• Synergies and profit realization after the Leoni acquisition