Jefferies Downgrades BYD Electronic Amid Earnings Shortfall and Rising Margin Challenges

BYD Electronic, the Hong Kong-listed component manufacturer, has felt the heat after missing earnings expectations in the latter half of 2025. Jefferies responded by downgrading the stock to Hold from Buy, chopping its price target from HK$42.00 down to HK$35.00.

The company reported a net profit of RMB1.79 billion for the second half of 2025, marking a 35% dip compared to the previous year. That fell significantly short of both Jefferies' and consensus estimates - down by 31% and 37%, respectively. For the full year, net profit reached RMB3.5 billion, lagging behind the company's own guidance range of RMB4.0 to 4.5 billion.

While revenue held steady overall, gross margins took a hit, sliding 1.7 percentage points to 5.3%. Jefferies points to a stronger renminbi causing foreign exchange challenges - tough when roughly 50-60% of its Apple-linked sales are denominated in U.S. dollars - and waning demand specifically for its metal casing products.

Looking beyond currency issues, Jefferies flagged shifting tides in BYD Electronic's core metal casing segment. Apple's pivot to lower-cost aluminum casings for its premium iPhone models is expected to keep a lid on average prices. Add to that potential longer-term risks from industry trends towards 3D-printed metal parts and glass casings, which could erode BYD's content contribution starting in 2027.

Meanwhile, the company's ambitions to grow in electric vehicle parts remain sluggish. Its recent dive into AI data center hardware - including liquid cooling and power components for players like NVDA and U.S. cloud providers - is still early days, with no clear evidence yet of major contract wins from large cloud service providers.

On the bright side, the anticipated rollout of the foldable iPhone late in 2026 could inject fresh momentum, expected to bring in content worth over $100 per device. Additionally, expansion in EV parts and AI data center segments are slated as potential growth drivers over 2026 and 2027.

Jefferies has lowered its revenue and net profit estimates for BYD Electronic in 2026 and 2027 by roughly 10-11% and 28-37%, respectively, citing currency pressures and deeper structural challenges. Despite the company trading at relatively modest price-to-earnings ratios of 18x for 2026 and 12x for 2027, further profit misses could mean yet more adjustments ahead.

The market will now be watching closely if BYD Electronic can turn these headwinds into opportunities or if the margin squeeze will tighten further. With a lot hinging on product shifts and emerging sectors, the next couple years could be a defining period for the component maker's trajectory.