Luxshare Earnings: Shifting Focus to AI Servers and Autos Is a Good Sign for Profitability

We cut our fair value estimate for Luxshare Precision to CNY 40 from CNY 41.50 per share after modeling a milder five-year revenue compound annual growth rate, or CAGR, in the consumer electronics segment to 10.8% from 15.3%, partly offset by faster growth in other segments. Luxshare has become more cautious in consumer electronics capital expenditure, which we think makes reversing its multiyear decline in gross margins more probable. Shares of Luxshare are undervalued, in our view, as the company benefits from demand for faster data transmission speeds on artificial intelligence, or AI, servers and some other supporting functions.