Event: the company released its half-yearly report on August 15, 2023. The total revenue of the company was 332 million yuan, down 21.39% from the same period last year; the net profit from home was 45 million yuan, down 48.55% from the same period last year; and the net profit from non-return was 40 million yuan, down 53.59% from the same period last year.

The demand for communication connectors is in the doldrums, and the decline in gross profit margin is a drag on performance. 2023H1's operating income was 332 million yuan, down 21.39% from the same period last year, and its net profit was 45 million yuan, down 48.55% from the same period last year. The decline in revenue was mainly due to the external economic environment and terminal influence, and the business demand for high-speed communication connectors fell short of expectations. The gross profit margin of 2023H1 decreased by 6.52pct to 30.09% compared with the same period last year, mainly due to the slowdown in income growth and the reduction of production capacity margin, while the net profit margin of homing decreased by 7.16pct to 13.55% compared with the same period last year, mainly due to the increase in expense rate caused by the expansion of the company's business staff team. In the future, with the expansion of communication connector module shell Cage products to 112G/224G, it is expected to improve capacity utilization, and high-speed communication business is expected to return to the high-speed growth trend.

We will continue to increase investment in research and development and pay attention to intellectual property protection. The net cash flow generated by 2023H1's operating activities was 54.5 million, an increase of 81.98% over the same period last year, and the expense rate during the sales period was 16.87%, an increase of 4.21% over the same period last year. Of this total, the financial cost was-11.31 million yuan, an increase of 64.15% over the same period last year, mainly due to the increase in interest income on time deposits raised during the reporting period; the R & D expenditure was 34.81 million yuan, an increase of 23.52% over the same period last year. The main reason is that the company attaches great importance to technological innovation, optimizing products while developing new products, and continuously increasing R & D investment, resulting in an increase in R & D expenses over the same period. The company has the competitive advantage of comprehensive service ability which integrates precision mold design and development and product manufacturing, and continuously innovates the R & D mechanism, and attaches great importance to the protection of intellectual property rights. In the field of high-speed communication connector business, the company focuses on the research and development of new products, multi-interface shell QSFP-DD112G/OSFP-DD/OSFP and other products, and carries out the battery module management water cooling board project in the new energy vehicle module. 2023H1 has applied for 6 new invention patents and obtained 3 invention patents. By the end of the reporting period, the company has obtained 39 invention patents and 78 utility model patents.

It is proposed to issue convertible bonds to raise 795 million yuan, plus the layout of new energy vehicle connectors. The company plans to issue convertible bonds to raise 795 million yuan, which is mainly used for new energy automobile parts production and construction projects, R & D center construction projects and supplementary current funds. The total investment amount in the three directions is 816 million yuan, of which the funds to be raised by convertible bonds are 488 million yuan, 177 million yuan and 130 million yuan respectively. The project base will improve the layout of enterprise capacity structure and help absorb new energy terminal manufacturers. In the first half of 2023, the company's auto connector business revenue maintained rapid growth, and the proportion of revenue from new energy products continued to increase.

At present, the field of new energy vehicles has entered the stage of industrialization, the increase in production capacity will help the company to further consolidate its foothold in the field of automobile connectors, promote the rapid development of business, and open up the company's second growth curve.

Make full use of the advantage of production capacity, the performance growth in the field of communications is expected. The Malaysian subsidiary of the company has gradually entered the stage of putting into production. At present, the factory's product positioning is mainly focused on communication connector business, which deeply meets the needs of the world's leading customers, such as Amfino, Morse, Tyco and so on. In the context of the weak communications market and declining sales of CAGE products, the company actively broadens its product range, providing products such as CAGE assemblies, stamping injection molding parts and radiators. The company strives to expand overseas markets and implement multi-point layout of the industry.

Investment suggestion: the company focuses on R & D, production and sales of communication connector precision components and automotive connector precision components, relying on the integrated service capability of precision mold design, development and product manufacturing, establishing a long-term and stable cooperative relationship with international connector giant manufacturers, the company's product category continues to expand, deeply bound to the industry leader BYD, at the same time, the company will directly benefit from AI's demand for numeracy. The field of communication connectors is expected to return to high-speed growth. We expect the company's return net profit from 2023 to 2025 to be 1.54, 2.20, 4.00 respectively, with a corresponding growth rate of-9%, 43%, 82%, and 38.1X/26.7X/14.7X, respectively, corresponding to 38.1X/26.7X/14.7X, maintaining the "overweight" rating.

Risk tips: downstream demand fluctuation risk, high customer concentration, convertible bond project implementation is not as expected, fixed increase project capacity utilization is not as expected, automobile market customer development is not as expected.