The quality of revenue increased in 2022, and I am optimistic that the company's performance will rise with the industry's beta. The company released its 2022 annual report and 2023 quarterly report. In 2022, the company achieved operating income of 1,611 million (YoY +9.99%), net profit of 130 million yuan (YoY +47.80%), gross profit margin of 16.17% (same increase of 2.09pct), and net interest rate of 8.10% (same increase of 2.07 pct); achieved revenue of 328 million (YoY -13.53%) in the first quarter of 2023, with a net profit of 160 million (YoY -25.14%), gross profit of 14.31% (YoY -25.14%) +0.96pct), net interest rate 4.80% (YOY-0.74pct). We believe that the company's high growth rate in 2022 is mainly due to the release of special cables and connection products with relatively high gross margins. It is expected that with the continuous implementation of the country's Eastern and Western Computing Policy and the continuous increase in data volume and demand for high computing power under application catalysis, the industry in which the company is located will have a lot of room for development.

The rate increases high certainty, brings opportunities for product iteration, and is expected to rise sharply in volume and price. We believe that the company's main focus is the increase in product rate and the development of products from low added value to high added value: the company's main business is divided into data cables, special cables, connection products, etc. In terms of data cables: Currently, the company can provide Class 5e, Class 6, Class 6A, Class 7, Class 7A to Class 8 data cables for small devices and sensor scenarios in intelligent scenarios. We believe that with the increase in intelligence, the upgrading of network bandwidth, and the increase in data transmission rate have a high degree of certainty, driving the company's 6A and above data cables to replace traditional Class 5e and 6 data cables. During product iteration, the profit margin of the data cable sector is expected to continue to increase; in terms of special cables: the company can provide products such as high-speed transmission cables and industrial digital communication cables Among them, high-speed transmission cables are mainly used for parallel high-speed symmetric cables between switches and server equipment and for connecting devices inside and outside the server. Currently, the company can produce high-speed transmission components and supporting high-speed transmission cables for 400Gb/s and above on a large scale. According to IDC reports, the current mainstream transmission rate in China is mainly 100G/50G, and there is broad room for future growth; in terms of industrial digital communication cables, the company's products are mainly used in scenarios such as vehicles, new energy, smart factories, industrial automation, offshore engineering, etc., as the application of 5G+ industry equipment continues As progress progresses, the volume and price of the company's product application scenarios are expected to rise sharply. In terms of connectivity products: Including various cable components and connectors used in high-speed interconnects, industrial and medical, communications and data centers. Among them, cable component products mainly cover three categories: high-speed cable components, industrial cable components, and data cable components. We believe that the company's main driving force in the future is high-speed cable components. DAC costs and power consumption are far lower than AOC, and domestic related products are still dominated by overseas manufacturers. The company has many related patents and strong product strength. Under autonomous control and speed improvement opportunities, connectivity products are expected to have a lot of room for development in the future.

The demand+policy resonance, driven by dual engines at home and abroad, gave the company a “careful recommendation” rating. The main pricing model for the company's products is mainly based on the cost addition method. We predict that in the future, as the product structure changes and the introduction of new products with high added value, the company will rely on technical advantages, and profit margins will increase steadily. At the same time, the benefits of policy and demand are superimposed, domestic and foreign customers continue to develop, and the company's revenue and profit may double in the future. Based on the company's 2022 annual results, we gave the company a net profit forecast value of 146 million yuan, 180 million yuan, and 228 million yuan for 2023E-2025E. The corresponding PE was 36.30 times, 29.36 times, 23.20 times. The first coverage gave the company a “careful recommendation” rating.

Risk warning: risk of global environmental uncertainty; risk of technology iteration, new product development risk, increased market competition risk; risk of fluctuations in raw material prices, etc.