---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 169740
conversation_id: 22cf21fe-7272-41e5-a7f9-d7d45f0766b9
citations: 11
created: 2026-05-31 21:45:56Z
---

# What is the investment thesis for FII in the current market environment?

# FII (Foxconn Industrial Internet, 601138 CH) — Investment Thesis in Current Market Environment

**Note on entity disambiguation**: In the CLSA workspace, "FII" refers to **Foxconn Industrial Internet (601138 CH / 601138.SS)**, a Shanghai-listed subsidiary of the Foxconn group that manufactures cloud equipment (AI/general servers), telecom & networking gear, and precision components (iPhone metal casings). Latest CLSA standalone note on the name is dated **2 May 2025** — this answer is built off that vintage; corpus sync may not include later updates.

## Headline Call

| Item | Value |
|---|---|
| **Rating** | Outperform (O-PF) — maintained [2] |
| **Target Price** | Rmb 20.30 (cut from Rmb 23.20, -12.5%) [3][9] |
| **Valuation basis** | 14x 26CL PE (lowered from 16x) [3] |
| **Upside to last close** | +12% (vs price Rmb ~18, 30 Apr 2025) [9] |
| **Market cap** | US$49.5 bn; free float 15.8%; 3M ADV US$349 m [9] |

## Three-Pillar Investment Thesis

CLSA frames the thesis around three drivers [1]:

1. **AI server / cloud-equipment leadership** — FII is a leading AI-server ODM and HPC GPU-board supplier. It is a **major AI-server supplier for Amazon (40%+ share), Microsoft, and Oracle**, a **dominant NVIDIA GPU card supplier (over 80% share)**, and also supplies NVIDIA's HGX/UBB GPU modules [1]. Cloud equipment revenue grew **64% YoY to Rmb 319.4 bn in 2024**, lifting its contribution to total revenue by **12 ppt YoY to 52%**. AI-server revenue alone is estimated to have grown **162% YoY to Rmb 153.0 bn in 2024 (25% of total)**. In 1Q25, cloud equipment revenue grew 50% YoY, with both AI-server and general-server revenue growing >50% YoY. CLSA models **4.5mn Blackwell GPU shipments globally in 25CL, including 20K GB racks and ~350-400K 8-card HGX Blackwell servers**, with FII as a key supplier of GB racks and HGX servers [4].

2. **iPhone metal-casing upgrade cycle** — FII holds an estimated **60-70% market share in iPhone metal casings**, benefiting from Apple's casing upgrade trend. 5G handset metal-casing shipments grew 10% YoY in 2024, with stable share at its US major client [1][5].

3. **AI-related networking** — Fast-growing high-speed switches and routers for AI data-centre buildouts. Telecom & networking equipment revenue was up 3% YoY to Rmb 287.9 bn in 2024, but **400G/800G switch shipments grew multifold YoY** [1][5].

## Why CLSA Cut the Target Price (the Tactical Overlay)

Despite maintaining O-PF, CLSA reduced the multiple from 16x → 14x 26CL PE on two near-term concerns [3]:

- **AI capex growth slow-down risk into 26CL** — the rate-of-change in hyperscaler capex is the swing factor for the cloud-equipment line.
- **Tariff policy uncertainty for the Apple business** — partially mitigated by FII's **Mexico factories**, which CLSA expects to limit tariff impact on the AI-server business specifically [3].
- **GB rack mass production not yet smooth** — operational ramp risk on Blackwell-generation racks [3].

EPS estimates were left essentially **unchanged** (25/26CL EPS Rmb 1.31 / Rmb 1.45) — the TP cut is purely multiple compression, not an earnings downgrade [3][9].

## Financials Underpinning the Thesis [8][10][11]

| Year to 31 Dec | 2023A | 2024A | 2025CL | 2026CL | 2027CL |
|---|---|---|---|---|---|
| Revenue (Rmb m) | 476,340 | 609,135 | 753,187 | 860,365 | 883,252 |
| Revenue YoY | (6.9%) | +27.9% | +23.6% | +14.2% | +2.7% |
| Net profit (Rmb m) | 21,040 | 23,216 | 26,006 | 28,767 | 30,063 |
| EPS (Rmb) | 1.06 | 1.17 | 1.31 | 1.45 | 1.51 |
| EPS growth | +4.8% | +10.3% | +12.0% | +10.6% | +4.5% |
| PE (x) | 17.0 | 15.5 | 13.8 | 12.5 | 11.9 |
| ROE | 15.6% | 15.9% | 16.3% | 16.6% | 16.0% |
| Net debt / equity | (23.1)% | (18.8)% | (21.4)% | (21.0)% | (25.9)% |
| Dividend yield | 3.2% | 3.5% | 4.0% | 4.4% | 4.6% |
| Payout ratio | — | 54.7% | 54.7% | 54.7% | 54.7% |

**Quality features supporting the bull case:**
- **Net-cash balance sheet** (net debt/equity -19% in 2024, deepening to -26% by 2027CL) [8].
- **Mid-teens, rising ROE** (15.9% → 16.6%) over the forecast window [8].
- **Steady 54.7% dividend payout**, lifting the yield from 3.5% to 4.4% by 26CL [8].
- CLSA estimates run **20-24% above consensus EPS** in 25CL-27CL (CL/consensus 84/80/76%) — i.e., the broker is meaningfully more bullish than the Street [8].

## Most Recent Print (1Q25) — Thesis Is Tracking

- 2024 revenue +28% YoY to Rmb 609.1 bn; net profit +10% YoY to Rmb 23.2 bn, in line with prelims [2][7].
- 4Q24: revenue +17% YoY, net profit +7% YoY; GPM +0.1 ppt YoY / +1.5 ppt QoQ to 8.4% [7].
- 1Q25: revenue +35% YoY to Rmb 160.4 bn, net profit +25% YoY to Rmb 5.2 bn — driven by solid AI-server revenue growth [2][7].
- 1Q25 GPM compressed 0.9 ppt YoY to 6.7% (NPM -0.3 ppt to 3.3%) on **increasing buy-and-sell mix** — a known structural margin headwind from the AI-server scale-up [7].
- 2024 dividend +10% YoY to Rmb 12.7 bn (payout 54.7%) [7].

## Segment Mix (2024 → 2026CL) [10]

| Segment (Rmb m) | 2024 | % Mix | 2025CL | 2026CL | 25CL YoY |
|---|---|---|---|---|---|
| Cloud Equipment (AI + general servers) | 319,377 | 52% | 462,021 | 559,588 | **+44.7%** |
| Telecom & Networking Equipment | 287,898 | 47% | 289,137 | 298,566 | +0.4% |
| Industrial Internet | 940 | 0.2% | 1,034 | 1,137 | +10.0% |
| Others | 921 | 0.2% | 994 | 1,074 | +8.0% |
| **Total** | **609,135** | **100%** | **753,187** | **860,365** | **+23.6%** |

The picture is unambiguous: **the entire incremental revenue from 2024-2026CL is the cloud-equipment / AI-server line**. Telecom & Networking is essentially flat in dollar terms — the AI-server narrative IS the FII story in the current cycle.

## Valuation Frame [7]

CLSA values FII at **14x 26CL PE**, modestly above the historical average of ~13x, justified by accelerating EPS growth from 2024 onwards and the structural AI-driven long-term outlook. The lowered 14x (vs prior 16x) reflects the tactical AI-capex / tariff overhang [3][7].

## Key Risks [6]

- Slower-than-expected iPhone shipments (~Apple-exposed casing business).
- Slower 5G and AI adoption.
- Fierce competition in ODM / server assembly.
- (Tactical add-ons CLSA flagged) AI capex growth slow-down in 26CL; tariff policy uncertainty on Apple business; GB-rack mass-production ramp [3].

## Bottom Line

FII is positioned as a **mid-cycle AI-infrastructure compounder** with three reinforcing growth legs (AI servers, AI networking, iPhone casings), a net-cash balance sheet, mid-teens ROE, and a ~4% growing dividend yield. CLSA's central debate is **not whether the thesis works, but how much multiple compression to assign while AI-capex and Apple-tariff uncertainty plays out**. The maintained Outperform, vs-consensus +20% earnings call, and 12% TP upside reflect that the broker views the current set-up as a tactical de-rate inside an intact structural growth story [1][2][3].

---

**Sources**

[1] FII - O-PF (On track delivery) — CLSA (2 May 2025) — 607957908LinqAlpha.PDF — Investment thesis paragraph
[2] FII - O-PF (On track delivery) — CLSA (2 May 2025) — Cover page summary (rating, TP, 2024/1Q25 results)
[3] FII - O-PF (On track delivery) — CLSA (2 May 2025) — Valuation revise-down rationale (tariff / GB rack / 26CL capex)
[4] FII - O-PF (On track delivery) — CLSA (2 May 2025) — AI-server growth & client share (Amazon 40%+, NVDA GPU 80%+, Blackwell shipment model)
[5] FII - O-PF (On track delivery) — CLSA (2 May 2025) — Telecom & networking: 400G/800G switches; iPhone metal casing share
[6] FII - O-PF (On track delivery) — CLSA (2 May 2025) — Investment risks paragraph
[7] FII - O-PF (On track delivery) — CLSA (2 May 2025) — Valuation details (14x 26CL PE vs 13x historical avg) / 2024 & 1Q25 financial detail
[8] FII - O-PF (On track delivery) — CLSA (2 May 2025) — Financials-at-a-glance table (revenue, EPS, ROE, PE, dividend yield)
[9] FII - O-PF (On track delivery) — CLSA (2 May 2025) — 12M price target table (Rmb 20.30, market cap, free float)
[10] FII - O-PF (On track delivery) — CLSA (2 May 2025) — Annual segment revenue breakdown (Cloud / Telecom / Industrial Internet)
[11] FII - O-PF (On track delivery) — CLSA (2 May 2025) — Earnings revisions & 26CL PE multiple change table

## Citations

- [1] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [2] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [3] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [4] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [5] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [6] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [7] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [8] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [9] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [10] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>
- [11] **607957908LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607957908LinqAlpha.PDF>

