Performance review

1H22 performance is in line with our expectations

The company announced 1H22 results: revenue 644 million yuan, year-on-year-4.03%; return to the mother net profit 0.72 yuan, year-on-year-31.86%. Corresponding to 2Q22 income 300 million yuan, year-on-year-15.37%, month-on-month-12.66%; return to the mother net profit of 39 million yuan,-29.78% year-on-year, month-on-month + 18.30%. 1H22's performance is in line with our expectations.

Trend of development

The volume of the automotive electronics business is expanding rapidly, and the profit margin is slightly squeezed by the downturn in the downstream market. The operating income of 1H22 was-4.03% to 644 million yuan compared with the same period last year, of which automotive electronics and consumer electronics business contributed 448 million yuan and 147 million yuan respectively. Affected by the decline in sales in the downstream automobile industry in the second quarter and the transfer price pressure in the home appliance market, the revenue end is slightly under pressure, and the sub-business gross profit margin is 38.16% higher than that of 2021-1.87ppt/-0.51ppt to 29.27%. 1H22 new energy project volume, contribute to a certain business increment, automotive electronics revenue accounted for 21 years + 2.95ppt to 69.54%. We believe that with the fixed volume of the company's new energy projects, the revenue contribution of the automotive electronics business is expected to further increase.

The rise in commodity prices has put short-term pressure on gross margins and the growth of R & D investment has significantly accelerated technological breakthroughs. 1H22 gross profit margin year-on-year-5.28ppt to 29.79%-4.43ppt/+1.76ppt to 30.73% respectively. We believe that the year-on-year decline in gross profit margin is mainly due to the obvious increase in the price of copper, plastic parts and other bulk raw materials since 3Q21, and the high depreciation pressure on equipment in the accelerated stage of production of new projects, and there is still room for improvement in capacity utilization. Commodity prices have fallen recently, with gross margins showing a slight improvement from the previous month. On the other hand, the company continues to increase the cost of new projects on hand. 1H22 Automotive Electronics new projects are + 50% year on year, and there are + 63% to 98 projects under research. The development of new consumer electronics projects has increased significantly, doubling that of 1H21. The company's 2Q22 R & D expenditure rate is the same as + 1.8ppt/+1.7ppt to 7.0%, and the R & D investment is increased to enhance the technology reserve. Benefiting from government subsidies and cash received from other operating activities, the operating net cash flow of 2Q22 has improved, with a month-on-month ratio of + 84.18% to 5 million yuan.

The progress of R & D and mass production of new energy vehicles and smart vehicles is accelerated, which is expected to open up the performance space. The company accelerates the layout of new energy and intelligent driving. 1H22 has set up a total of 48 new projects, of which the new projects of new energy vehicles, electricity and electricity account for 31.25%, and projects related to intelligent driving and intelligent cockpit account for 33.33%. At the same time, wholly-owned subsidiaries plan to invest 310 million yuan in key components projects of automobile electrification and intelligence. We believe that the company has made rapid progress in the development of products related to electrification and intelligence, and the product structure may be more optimized. it is expected to continue to broaden the customer matrix and open a new growth curve in the future.

Profit forecast and valuation

Keep profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to a price-to-earnings ratio of 35.5 times 2023 / 27.5 times 2023. Maintain the outperform industry rating, but due to the uptrend of the sector and the smooth expansion of the company's new projects, we raised the target price by 29.4% to 22.00 yuan corresponding to 38.8 times 2022 price-to-earnings ratio and 30.0 times 2023 price-to-earnings ratio, which has 9.2% upside space compared with the current stock price.

Risk.

The epidemic has repeatedly affected the production capacity of car companies, the price reduction of bulk raw materials is less than expected, and the expansion of new projects is not as expected.