Summary of the announcement: The company released its semi-annual report for 2023. During the reporting period, it achieved revenue of 243 million yuan, a year-on-year increase of 9.54%, net profit of 75 million yuan, an increase of 49.77% over the previous year, net profit after deducting non-return net profit of 54 million yuan, an increase of 9.89% over the previous year.

Performance has grown steadily, and profitability has remained at a high level. In a single quarter, 23Q2 achieved revenue of 128 million yuan, up 7.28% year on year, 12.12% month on month, net profit of 27 million yuan, up 1.49% year on year. The month-on-month decline was mainly due to Q1's wholly-owned subsidiary Kunshan Weikang transferring land use rights, housing, buildings and ancillary facilities under its name to obtain asset disposal income, after deducting net profit of 28 million yuan, up 6.2% year on year and 7.91% month on year. By product, the revenue of the three major segments of 23H1 industrial control/automotive/new energy connectors was 157 million yuan/42 million yuan/40 million yuan, respectively, an increase of 2.22%/31.8% /23 million yuan over the previous year.

At 9%, the growth rate of the industrial control business is affected by the macroeconomy, and emerging businesses such as automobiles and new energy have maintained relatively good growth. The profit side growth rate in the first half of the year was slightly higher than revenue, with a comprehensive gross profit margin of 42.25%, a slight decrease of 0.88 pct from the previous year, a year-on-year fee rate of 17.13%, a year-on-year decrease of 0.54%, a net interest rate of 30.78%, a year-on-year increase of 8.28 pct. Excluding the non-net interest rate of 22.43%, a slight increase of 0.07 pct over the previous year. Overall, the company continues to operate steadily and its performance is improving season by quarter. We believe that with the expansion of customers and products, the company's revenue is expected to expand at an accelerated pace, compounded by the scale effect, and performance is expected to grow rapidly.

Lay out a pan-industrial high-value market, and automobiles+new energy open up incremental space. The company is a scarce high-quality supplier of industrial control connectors in China. Facing the “small-batch, multi-variety” characteristics of the industry, by integrating key customer needs, a single product can be imported into multiple customer projects and sold in bulk, improving production efficiency, and expanding new application scenarios. In industrial robots, Wafer series connectors, WD series wire-to-board connectors and other related products have been mass-produced, and the high-precision, high-frequency signal transmission connectors required for automated robots continue to advance. Some specification products have been mass-produced, and are expected to expand to the humanoid robot field in the future to enhance product value. Automobiles and new energy have been key development areas in recent years. The automotive side uses three-electric system connectors as the main product, focusing on medium and low voltage signal segmentation. Shipments from customers such as 23H1 BYD, Ikon Power, and Anbofu have all increased year-on-year positively. The company focuses on deploying high-speed high-frequency connectors. It has completed the development of high-speed connectors such as automotive intelligent cockpit systems and autonomous driving systems, and has laid out new products such as front-end visual perception for intelligent driving, body area control PCB board end connection solutions, and high-speed Ethernet components, etc., benefiting from the incremental connector market and domestic replacement opportunities brought about by intelligent automotive networking. In terms of new energy, the company's products are mainly used in solar energy and wind energy inverter systems. 23H1 is jointly developed with key customers to expand household storage, commercial storage and charging application scenarios, form comprehensive coverage of optical storage and charging, and help medium- to long-term development.

Adhere to R&D innovation and improve domestic and foreign production capacity layout. With product capability as the core, the company invested 32.77 million yuan in R&D at 23H1, an increase of 23.67% over the previous year. It has mastered the core technology of high-performance professional connector products such as small-pitch floating board-to-board connectors, small-pitch high-frequency high-speed board-to-board connectors, and modular integrated connectors. Some models of products have reached or are close to world-class levels, continuously improved technical capabilities, product cost performance, and rapid and flexible response services have helped the company expand its market influence. The company actively expands customers and domestic and foreign markets, and its industrial control business actively introduces new customers such as Panasonic in Zhuhai, Shanhua, and Tianjin Honeywell to open up the international market. According to the latest announcement, it plans to invest no more than 15 million US dollars to establish a Thai production base to better meet the procurement needs of international customers and enhance overall risk resilience. The previous IPO raised 1,444 billion yuan to build an intelligent manufacturing center and R&D center at the South China headquarters, which is expected to ease production capacity bottlenecks. It is expected to ease production capacity bottlenecks. It enhances its production automation level and production efficiency through the purchase of advanced production equipment and systems, and enhances the high-end connector field. Strength, sufficient production capacity and technical reserves will provide continuous impetus for the company's rapid development.

Investment suggestions: The company is a leading industrial control connector in China. Automobiles and new energy are expanding smoothly, products and customers are continuously being enriched, and the revenue scale continues to expand. Under a differentiated competitive strategy, the profit level is in the upstream range of the industry. Under the boom in downstream applications and the trend of domestic replacement of connectors, the company's performance is expected to usher in rapid growth.

We expect net profit from 2023-2025 to be 171 million/232 million/311 million yuan, and EPS to be 1.56 yuan/2.11 yuan/2.83 yuan respectively, maintaining the “buy” rating.

Risk warning: rising prices and supply risks of major raw materials; risk of increased competition in the industry; risk of technological iteration; risk of fluctuations in the international macroeconomic and political situation.