1H23 performance is in line with our expectations

The company announced 1H23 results: revenue 1.567 billion yuan, year-on-year + 29.8%; return to the mother net profit 81 million yuan, year-on-year + 62.14% politics 2Q23 income 828 million yuan, year-on-year + 39.6%, month-on-month + 12.08%; return to the mother net profit 45 million yuan, year-on-year + 101.31%, month-on-month + 22.94%, in line with our expectations.

Trend of development

The volume of new orders continued and the export business grew steadily. From a product point of view, 1H23's revenue from ordinary line / new energy line is 1.36 billion yuan, which is 24% compared with the same period last year, which shows the leading advantage of the industry. Among them, high value-added new energy cables accounted for 9.2% of the revenue. From the perspective of exports, the company's export business has grown steadily, with 1H23 export income of 167 million yuan, + 10.48% compared with the same period last year, accounting for 10.66%. We believe that with the company's recent issuance of convertible bonds to increase investment in new energy and intelligent network automobile cable industrialization projects, the proportion of new energy cable income structure will continue to increase in the future.

The advantage of capacity climbing scale is significant, and the reduction of copper price promotes the improvement of gross profit margin. 1H23 gross profit margin is 11.96%, year-on-year + 0.97 ppt 2Q23 gross profit margin is 12.46%, year-on-year + 1.36ppt, month-on-month + 1.05ppt. The year-on-year increase in 1H23 gross profit margin is mainly due to: 1) the gross profit margin of new energy line products is growing rapidly. The gross profit of 1H23's ordinary line / new energy line is 11.35%, 18.79%, respectively, compared with the same period of last year + 0.94pct/+2.31pct. 2) the capacity continues to climb, and the scale effect is significant. The capacity utilization rate of the 1H23 Shanghai factory and Benxi Phase II plant has been gradually improved. After the Macheng plant in Hubei was put into production, the company's competitiveness has been further enhanced. 3) under the pricing mode of "copper price + processing fee", the processing fee is relatively fixed, and the copper price of 2Q23 decreases compared with the previous month, which leads to the improvement of gross profit margin of high and low voltage cables. In addition, the company's operating net cash flow significantly improved, 1H23 year-on-year + 291% to 24 million yuan. We believe that with the increase in the proportion of high-margin high-voltage lines in the second half of the year, profitability will continue to improve.

The trend of electrification + intelligence continues to advance, and the demand for import replacement of high-voltage cables is rising. On the demand side, as the automobile electrified and intelligent two-wheel drive drives the growth of the demand for high and low voltage cables, the scale of the automotive cable industry ushered in expansion. On the supply side, the company pays attention to capacity expansion and R & D investment. The production base is located in Ninghai, Zhejiang, Benxi, Liaoning, Shanghai, Huizhou, Guangdong and Chengdu, Sichuan. The technical level of the products is up to the international standards. We believe that the company, as the leader of the domestic automobile cable industry, is expected to further increase its market share under the trend of import substitution of auto parts.

Profit forecast and valuation

Due to the pressure on cable sales of customers of traditional joint venture car companies, we have reduced the 2023 Universe net profit by 9.0% Universe 9.3% to 225 million yuan / 311 million yuan. The current share price corresponds to 2023 Universe 20.6 Compact 14.9x Pax E in 2024. Considering the company's leading position, it maintains an outperform industry rating and a list price of 69.30 yuan, corresponding to 27.3 Universe 19.7 times 2023 Universe 2024 Pamp E, which has 32.7% upside compared to the current stock price.

Risk

Sales of new energy cables fell short of expectations and profit improvement fell short of expectations.