Incident: The company released its 2022 annual report and the first quarter report of 2023. In 2022, the company achieved revenue of 3.845 million yuan, -3.65% year-on-year; realized net profit of 157 million yuan, -48.62% year-on-year; and realized net profit of 199 million yuan, -18.06% year-on-year. In Q1 of 2023, the company achieved revenue of 695 million yuan, -24.75% year on year and -13.11% month on month; realized net profit of -29 million yuan, -159.21% year on year, +28.66% month on month; realized net profit after deducting non-net profit of -29 million yuan, -171.46% year on year, -2.71% month on month.

Demand affects Q1 performance in 2023, and demand for notebook Q2 is expected to pick up: The company's performance in 2022 is under short-term pressure, mainly due to the overall decline in laptop shipments in 2022 and the slowdown in demand for laptop structural components. It is expected that demand in the notebook industry will pick up in Q2 2023, and the company's order volume is expected to improve. By product, PC and smart terminal structural parts revenue was 3.20 billion yuan, -12.70% year on year; mold revenue was 247 million yuan, -12.11% year on year; and communication electronics revenue was 336 million yuan. The company's gross margin in 2022 was 16.95%, +1.16pcts year on year; net interest rate was 3.50%, -4.03pcts year on year. Net interest rates have declined sharply, mainly because many of the company's subsidiaries have been put into operation one after another, management costs have increased, reduced the company's profit margins, compounded by fluctuations in the US dollar exchange rate, which affected the company's forward settlement and options business, resulting in a sharp loss in investment income. In terms of expenses, the sales/management/R&D/finance expenses ratio in 2022 was 1.08%/3.58%/4.34%/0.16%, respectively. The year-on-year changes were +0.55/+0.76/+0.84/-1.09pcts respectively. Among them, the sharp decline in financial expenses was mainly due to increased exchange earnings.

The advantages of notebook structural components have been strengthened, and industry demand is about to recover: the company has been deeply involved in consumer electronics structural components for many years and has a leading edge in the field of notebook structural parts. It is one of the few manufacturers with independent mold design and production capabilities. Subsidiaries Chongqing Chunqiu and Nanchang Chunqiu were put into operation one after another in 2022, and production capacity was gradually released.

By setting up overseas production bases, the company expanded the global market and accelerated its international layout. The company's investment in Vietnam in 2022 also progressed smoothly, and it is expected that effective production capacity will be formed in 2023. The company's production base is close to customers, which helps reduce transportation costs and improve responsiveness and service capabilities to customers. The company relies on the resource advantages of core major customers such as Lenovo, Samsung Electronics, HP, Dell, and LG to further develop customer resources for other brands and increase market share, which helps the company improve its competitiveness. As demand for consumer electronics picks up and inventory adjustments in the laptop industry are gradually being adjusted, the company expects demand in the Q2 industry to improve, which is expected to drive the company's main laptop structural component module business.

Semi-solid-state injection technology has created barriers, and automotive electronics are poised to move forward: the NEV industry is in a period of growth, the market scale is expanding rapidly, and a new industrial pattern involving vehicle manufacturing and core components is gradually taking shape, which is a highly certain direction for future industrial development. The company has successfully broken through “semi-solid state injection molding” technology, proficient in the use of equipment and supporting technology, and formed certain industry barriers. At present, the company has formally established cooperative relationships with many NEV brands or their suppliers. The company's automotive electronics sector has now entered the mass production stage, and future orders will gradually increase. In terms of production capacity, the company recently raised 570 million yuan in convertible bond projects, and plans to invest 400 million yuan for the annual production of 5 million sets of automotive electronic magnesium-aluminum structural parts. The company has many years of manufacturing experience and technical advantages in the application of magnesium alloy materials. Through semi-solid injection molding technology, in the lightweight development trend of new energy vehicles, it can quickly enter the parts supply chain of new energy vehicles through on-board screens, and can provide application support for central control systems, steering systems, electronic control systems, etc. of new energy vehicles. The superior properties of magnesium-aluminum alloys can meet the lightweight and functional requirements of automobiles. As the boom in automotive electronics continues to rise in the future, it is expected that the company will fully benefit from the increasing demand for magnesium-aluminum structural components in new energy vehicles in the future.

Maintaining the “buy” rating: The company has been deeply involved in precision structural parts for many years and has integrated service capabilities from precision mold design and manufacturing to precision structural component module production for consumer electronics products. It is one of the leading enterprises in the industry. The company changed from laptop structural parts to automotive electronic structural parts. It has the latest technology for magnesium and aluminum structural parts. It can obtain orders from new car builders with technical advantages and scale advantages, and quickly enter the new energy vehicle market. We are optimistic that magnesium-aluminum alloys will play a unique advantage in automotive electronics and become a new growth point for the company's future performance. We estimate that the company's net profit from 2023 to 2025 will be 200 million yuan, 317 million yuan, and 441 million yuan. EPS will be 0.45 yuan, 0.72 yuan, and 1.00 yuan respectively, and the corresponding PE will be 18X, 11X, and 8X respectively.

Risk warning: New business development falls short of expectations, downstream demand falls short of expectations, production expansion progress falls short of expectations, and exchange rate fluctuations affect.