Limited impact from tariff given low US exposure

京东方精电(00710)\r

We hosted an investor call with BOEVx regarding the recent US reciprocaltariffs. Overall, mgmt. believes there is limited impact on their financials givenlow US sales exposure. Regionally, BOEVx is positive on Vietnam’s capacityramp-up in 2025 and already received orders from the US and South Koreancustomers. In addition, mgmt. believes Mexico is a sweet spot under USMCAand they will work with Parentco to lower tariff risks in the future. Additionally,BOEVx will focus on overseas market expansion and adjust product mix in thelonger term. BOEVx also announced a share repurchase plan on 11 Apr,demonstrating mgmt.’s confidence in the business outlook. Overall, we arepositive on system biz, high-end auto display and overseas expansion to drivegrowth. Maintain BUY.\r

Limited impact on financials given low US sales mix. Mgmt. believesthat there is limited impact on its financials from the US reciprocal tariff giventhat its direct export to US market’s sales mix is very low (2.6% in FY23)and even lower contribution in terms of earnings. Mgmt. reiterated that theycan supply the US markets through Mexico and Vietnam to avoid tariffs, andMexico is the sweet spot under USMCA. In addition, mgmt. believes that USauto manufacturers’ OEMs are located in tariff-friendly zones and BOEVxcan directly supply these OEMs according to customers’ demand.\r

Regional capacity allocation and adjust product mix to avoid tariffrisks. Mgmt. is positive on Vietnam’s plant construction to accelerate andexpect mass production in 2025 with US/South Korean customers orderwins. In Mexico, mgmt. is encouraged on its capacity ramp-up, and the plantcan currently supply up to 62% of US local market demand. In addition,mgmt. expects BOEVx to adjust customer and product mix to diversitytariff’s risk in the longer term, including non-auto biz expanding into AIhardware and industrial equipment. In addition, mgmt. aimed to lower singlecustomer’s sales mix from 34% to 25% or lower.\r

Other highlights. 1) Limited impact on raw material procurement giventhat core materials such as backlight modules and display panels aresourced mostly from domestic suppliers with only a small amount of IC chipsfrom the US but actual production in Southeast Asia; 2) limited impact ontechnical upgrade in production lines since key equipment is notexclusively supplied by the US; 3) BOEVx will continue to expand in theUS market but will prioritize markets including Japan and South Koreamarkets; 4) cooperation with the Parentco’s assembly plant in Mexicoto avoid tariff risks.