Key points of investment

Incident: On April 21, 2023, Gongjin Co., Ltd. released its 2022 annual report. In 2022, the company achieved operating income of 10.974 billion yuan, an increase of 1.53% over the previous year, and achieved net profit of 227 million yuan to the mother, down 42.68% from the previous year, after deducting the net profit of non-Gwimo 173 million yuan, a year-on-year decrease of 45.33%.

Guimu's net profit stage changed, and the company's overall performance improved. Profit attributable to the parent company rose steadily in the first three quarters. At the end of the reporting period, the company calculated preparations for impairment of the goodwill of its subsidiary Shandong Wenyuan, which led to a decrease of 269 million yuan in net profit attributable to shareholders of listed companies. In 2022, the company achieved net profit of 227 million yuan, a decrease of 42.68% over the previous year. According to data calculated ahead of time, the company's actual net profit attributable to shareholders of listed companies was 496 million yuan, an increase of 25.29% over the same period last year. During the reporting period, the company's net profit to the parent first rose and then declined, but the company's overall revenue improved. In 2022, the company achieved operating income of 10.974 billion yuan, an increase of 1.53% over the previous year. In terms of products, in the company's main business, the revenue scale of PON series products, DSL series products, and digital communication business was 4,017 billion yuan, 1,525 billion yuan, and 1,805 billion yuan respectively. The gross margin of the main business of PON series products increased by 512 percentage points year-on-year. From a regional perspective, the company's domestic and overseas main business revenue in 2022 was 4.762 billion yuan and 5.976 billion yuan respectively. The gross margin increased year-on-year. Among them, overseas accounts for 55.65% of the main business, and revenue increased year-on-year 15.94%; on a quarterly basis, the company's revenue for the four quarters of 2022 was 2,456 million, 2,740 million, 2,876 million, and 2,902 billion, respectively, rising steadily. Among them, the company's comprehensive gross margin reached 16.81% in the fourth quarter under the influence of adverse factors.

The development of sensor testing and automotive electronics markets injected new momentum into the company's future development. The company continuously optimizes its business structure around market demand and actively explores the development of new business models such as sensor packaging and testing business and automotive electronics business. The size of the sensor market continues to rise. According to the forecast of the Forward-Looking Industry Research Institute, GAGR in the sensor manufacturing industry will reach 19% in the next five years, and the market size of China's sensor industry is expected to reach 708.2 billion yuan by 2026.

Relying on the National Smart Sensor Innovation Center and Taicang production base, the company focuses on testing and packaging business in the field of smart sensors. In 2022, the company signed service contracts with nearly 20 sensor design companies to develop solutions with nearly 10 packaging customers, and achieved revenue of more than 12 million yuan throughout the year. The penetration of intelligent automobiles is accelerating. According to research and consulting data, the growth rate of China's automotive electronics market remained above 10% in 2017-2022. In 2022, the total delivery amount of the company's automotive electronics business exceeded 20 million yuan. According to the client, the company has successfully imported 1 automaker and 3 Tierl manufacturers, achieved 8 mass production projects, and targeted 3 mass production projects. Looking at the product side, the products have covered PCBA manufacturing such as central control screens, LCD meters, DVRs, DMS, super charging piles, lidar, etc. The company continues to explore new business fields such as sensor testing and automotive electronics to inject new momentum into the high-quality growth of the company's business.

Increase 5G product research and development to lay the foundation for rapid development. In 2022, the company invested about 448 million yuan in R&D, accounting for 4.08% of the company's revenue, 1,188 R&D personnel, accounting for 16.16% of the company's number. The company continued to increase its investment in the 5G new product business field. During the reporting period, its subsidiary Shandong Wenyuan accelerated independent R&D of 5G products. Expenses for the period increased 124.341 million yuan over the same period last year, and revenue was 163 million yuan in 2022, an increase of 2.08% over the same period last year. In terms of base station communication business, the company focused on 5G integrated small base stations, continued to consolidate 5G small base station product types around the three major markets (domestic operator market, domestic industry market, overseas ODM market), and completed 5G integrated product development. 5G Weihong Station carried out pilot work in many parts of the country. During the reporting period, the company's base station communication business revenue exceeded 100 million yuan, an increase of more than 20% over the same period last year. In terms of FWA products, the 5G FWA sector is growing rapidly. According to the report released by Trendforce in September 2022, 5G FWA product shipments will reach 7.6 million units in 2022, an increase of 111% over the previous year. Shipments are expected to reach 13 million units in 2023 and 22.5 million units in 2025. During the reporting period, the company successively launched new products such as 4G+DSL FWA and 5G FWA+Wi-Fi 6, and continued to advance 5G FWA+ Wi-Fi 7 product development work. The revenue of 5G CPE products increased by more than 300% compared to the same period last year. It is expected that in 2023, as FWA switches from 4G low speed to high speed and 5G, the revenue scale of the company's FWA business will be upgraded by leaps and bounds.

Investment advice: We believe that the company's product layout in the automotive sector will bring continued growth to the company. It is predicted that the company's revenue for 2023-2025 was 133.44/ 161.86/19.844 billion yuan, up 21.6%/21.3%/22.6% year on year. The company's net profit returned to the mother was 527/6.58/697 million yuan respectively, up 132.5% /24.8%/5.9% year on year, corresponding to EPS 0.66/0.83/0.88, PE 14.3/11.4/10.8; initial coverage, giving a “increase in holdings - B” rating.

Risk warning: The introduction of new products falls short of expectations; market competition continues to intensify; accounts receivable collection is not timely.