Events:

On April 18, 2023, the company released its 2022 annual report and the first quarter report of 2023. In 2022, the company realized operating income of 839 million yuan, an increase of 47.74% over the same period last year, a net profit of 168 million yuan, an increase of 54.02% over the same period last year, and a non-return net profit of 157 million yuan, an increase of 58.47% over the same period last year. In the first quarter of 2023, the company achieved operating income of 162 million yuan, down 8.18% from the same period last year; net profit from home was about 33 million yuan, up 3.06% from the same period last year; and net profit from non-return was 30 million yuan, down 2.75% from the same period last year.

The rapid development of communications and automotive connector business has led to the sustained growth of the company's performance:

Benefiting from the increased investment in infrastructure at home and abroad and the strong customer demand for communication connector components, the company seizes the opportunity to actively expand the product models of cage and structural parts, constantly enriching product application scenarios; at the same time, product upgrading has further raised product prices, and business income has continued to grow rapidly. In 2022, the company's communication connector component business achieved business income of 552 million yuan, an increase of 33.15% over the same period last year. In the automotive connector assembly business, the company actively broadens customer cooperation, deepening cooperation with existing customers such as BYD, and establishing new cooperation with China's Chang'an and XPeng Inc.. The company's products have passed certification and climbed into mass production in the second quarter of 2022, and the number of mass production projects has increased. In 2022, the company's automobile connector assembly business realized business income of 161 million yuan, an increase of 112.51% over the same period last year. In the single quarter of Q4 in 2022, the company achieved an operating income of 181 million yuan, an increase of 16.03% over the same period last year, and a net profit of 32 million yuan, an increase of 39.13% over the same period last year. The slowdown in performance growth compared with the first half of the year is mainly due to the relatively weak demand for communications business in the second half of the year. Affected by the decline in customer demand in the communications business in the first quarter of 2023, the company achieved operating income of 162 million yuan, down 8.18% from the same period last year, and realized net profit of about 33 million yuan, an increase of 3.06% over the same period last year. It is expected that with the rapid development of AI represented by ChatGPT, the demand for high computing power will drive the hardware demand of the communications industry, and the company's performance is expected to continue to benefit.

Profitability rebounded and investment in R & D increased:

Benefiting from the accelerated introduction of semi-automation and automation equipment, the company's cost control has been strengthened. In 2022, the company's sales gross profit margin was 35.65%, up 0.88 pct from the same period last year; and the net profit rate was 20.08%, up 0.82pct from the same period last year. Among them, Q4 in 2022 achieved a gross profit margin of 35.68%, an increase of 2.21pct over the same period last year, and a net profit rate of 17.68%, an increase of 2.94pct over the same period last year. The company's R & D expenditure rate increased in 2022 compared with the same period last year (1.27pct), mainly due to the increase in R & D projects, the increase in R & D team personnel, and the increase in R & D staff compensation caused by equity incentives.

Actively expand production capacity and strengthen the global layout:

With the rapid growth of business, the company is actively expanding production capacity to meet customer needs. By the end of 2022, the company has invested a total of 305.899 million yuan in the IPO project, and the investment progress of the connector production base project has reached 79.91%. The infrastructure part of the plant has been basically completed and will be gradually put into production. The company's current production base includes Dongguan Dingtong, Henan Dingrun and Malaysian subsidiaries. While actively expanding production, the company has strengthened its global layout, established a new Malaysian subsidiary and expanded its business in overseas markets. The establishment of Malaysian subsidiaries enables the company to further extend the industrial chain, expand the company's production scale and enhance its competitiveness.

Investment advice:

The company's performance has maintained rapid growth and actively expanded production capacity. We estimate that in 2025, the company will achieve an operating income of 1.214 million yuan, 17.32 billion yuan, an increase of 44.7%, 42.7%, 37.7%, and a year-on-year net profit of 2.42%, 3.41%, 465 million yuan and 43.5%, 40.9%, 36.5%, corresponding to EPS 2.45, 3.45, 3.45, 4.71 and PE 26.8, 19.0, 13.9 times. We give the company a six-month target price of 74.00 yuan and maintain a "buy-A" investment rating.

Risk hint: the production capacity climbing progress is not as expected, the labor cost is rising, and the risk that the new orders of major customers are not as expected.