Hon Hai Announces FY2023 & 4Q23 Financial Results

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Hon Hai Technology Group announced its full year and fourth quarter 2023 financial results. Full year 2023 net profit (attributable to the owners of the parent company, the same below) reached NT$142.1 billion, resulting in an earnings per share of NT$10.25, a 16-year high. At the same time, the Group announced that it will distribute a cash dividend of NT$5.40 per share, a record level since its listing in 1991 and implying a payout ratio exceeding 50% for the fifth year in a row. The Group revised upward its full-year 2024 outlook from neutral to significant growth, particularly noting strong growth of AI servers and components will be the biggest highlight this year.

For the full year 2023, revenue totaled NT$6.162 trillion, declining 7% on-year. Gross profit reached NT$387.9 billion, down a narrower 3%; operating net profit at NT$166.5 billion, fell 4%; but net profit rose 0.4% to NT$142.1 billion for the same time period. Gross profit margin, operating profit margin and net profit margin all improved, standing at 6.30%, 2.70% and 2.31% respectively, compared with 6.04%, 2.62% and 2.13% in the previous year. EPS for the year, at NT$10.25, rose by NT$0.04 on-year.

In the fourth quarter, revenue reached NT$1.852 trillion, falling 6% on-year; gross profit reached NT$113.3 billion, up 2% from the same three months a year ago; operating net profit was NT$48.93 billion, showing an on-year gain of 11%; and net profit was NT$53.15 billion, up 33% for the same time period. Gross profit margin, operating profit margin and net profit margin were 6.12%, 2.64% and 2.87% respectively, with all three also improving compared to 5.66%, 2.25% and 2.04% in the same period a year ago. EPS for the final three months of 2023 was NT$3.83, up NT$ 0.95 from the same period a year ago.

Regarding the Group’s full-year operating outlook for 2024, Hon Hai Chairman and CEO Young Liu said that last November during the previous quarterly investor call, our view on this year’s outlook was neutral. However, due to the recent increase in generative AI applications, the visibility on AI servers has become very high, prompting an upward adjustment in our outlook for the Group for this year to “significant” growth from the original neutral view.

In the closely watched AI server segment, Chairman Liu said the annual growth in GPU modules will more than double this year, while revenue from the AI server business is expected to exceed 40% on-year and account for more than 40% of total server business.

In terms of AI applications, Chairman Liu said that in addition to CSP customers, brand customers have also begun to actively develop AI servers. These are Hon Hai’s existing customers, so their vigorous development of AI, coupled with stabilization from general servers, will benefit the Group’s performance. Inventory digestion in networking products will have a slight impact on growth momentum in the first half of this year, however, judging from the entire cloud and networking products segment this year, strong growth is still achievable.

The Group’s core competitiveness in the field of AI servers is its vertical integration capabilities from components, modules, and complete systems to data centers, said Chairman Liu. Hon Hai has grasp of the key components of AI data centers, including high-performance computing servers, storage, switches, power supply solutions and advanced cooling technology. It is the only company that can provide comprehensive solutions for AI data centers, he said.

Chairman Liu said that with the requirement to improve GPU performance, the functions of high-speed switches will be highlighted; here, Hon Hai is an important supplier of switches. In liquid cooling technology, Hon Hai started working on it five years ago. The value the Group brings include better computing performance, optimization of the overall space design of the rack, industry-beating energy-saving performance, cooling solutions that can also reduce customers' operating costs, and quieter machine operation.

He also discussed the Group’s five operational pillars for 2024:

1. Smart City, Smart Manufacturing, Smart EVs platforms. The Group will continue to develop related technologies in electric vehicles, AI, semiconductors, and LEO satellites to propel its three smart platforms. The progress will be assisted by the AI factory and Hon Hai’s accumulated competitive advantages over 50 years in fields including components, modules, system assembly, IC and software.

2. Electric vehicle business. Currently, customer orders for the MODEL C exceeds 9,000 vehicles. The Group has gradually ramped up the deliveries of the number of vehicles in first quarter 2024, and deliveries of all current orders are expected to be completed before third quarter 2024. Shipments will exceed 10,000 units, and the revenue target will exceed NT$10 billion. Looking ahead, the MODEL C will expand into overseas markets.　

Customer demand has outstripped the existing production capacity of electric bus MODEL T. To boost production, Foxtron Vehicle Technologies expects to start construction on the Kaohsiung Qiaotou factory in second quarter 2024 and commence manufacturing and shipments in third quarter of 2025; building of the Group's battery center in Kaohsiung Hefa is underway as planned, and the first power battery cell is expected to begin mass production in fourth quarter of 2024.

3. AI server growth potential. Hon Hai will rely on its five core competitiveness in the field of AI servers, including R&D capabilities in key technologies; highly digitalized manufacturing platforms; comprehensive vertical and system integration capabilities; cooperation relationships with partner customers; and diversified global footprint to continue to maintain key leading, market position.

4. IC design. With the large expansion of foundries worldwide, Hon Hai will continue to focus on the highest cost segments of EVs, which are IC design in the three major categories of assisted driving, electric drive, and automotive electronic platforms. Shipments will commence in these ICs to automotive customers this year and will also be used in Hon Hai's passenger cars and electric buses.

5. Low-Earth-orbit satellite. The Group currently expects to win orders for key components of LEO satellites from international customers; at the same time, it has secured orders for ground equipment from major international satellite communications providers on combining the strength of Hon Hai’s precision manufacturing capabilities evident in the ICT industry. This will further contribute to the Group’s revenue.

The Group's capital expenditure in 2023 reached NT$111.7 billion, up 14% on year. Capex this year will continue to grow; it is anticipated to be higher than last year and expected to be up for the fourth year in a row. The trend shows that Hon Hai takes a positive view on several major development areas, including the existing ICT industry, AI servers, and new businesses. In addition, inventory levels have also improved significantly, by falling 22% from a high of NT$939.0 billion in 2022 to NT$730.8 billion at the end of 2023, showing effective post-pandemic management control and reduction.