Incidents:

On August 25, 2023, the company released the 2023 semi-annual performance report. In the first half of 2023, the company achieved operating income of 679 million yuan, an increase of 0.05%; realized net profit of 69 million yuan, a year-on-year decrease of 15.27%; realized non-attributable net profit of 63 million yuan, a year-on-year decrease of 15.89%; and achieved basic earnings per share of 0.1,794 yuan, a year-on-year decrease of 15.62%.

Short-term performance is under pressure, and revenue from the NEV business continues to grow:

In the first half of 2023, the company achieved revenue of 679 million yuan, which is basically the same as the same period last year. Among them, Q2 achieved revenue of 360 million yuan in a single quarter, a year-on-year decrease of 4.95%, and a year-on-year increase of 12.85%. During the reporting period, the company's rail transit and industrial sector achieved revenue of 311 million yuan, a year-on-year decrease of 11.45%, mainly due to a decline in the rail transit non-connector category. The automotive and energy information sector achieved revenue of 333 million yuan, an increase of 11.53% over the previous year. With the continuous release of the NEV charging business in the first half of the year, the NEV business achieved revenue of 305 million yuan, an increase of 15.77% over the previous year. In the first half of 2023, the company achieved net profit of 69 million yuan, a year-on-year decrease of 15.27%. Among them, Q2 achieved net profit of 34 million yuan in a single quarter, down 21.04% year on year and 2.86% month on month.

The equity incentive share payment expenses to be shared by the company in the first half of 2023 were 07 billion yuan. Without considering the impact of the current share payment fee, net profit of 77 million yuan was achieved, a year-on-year decrease of 6.12%.

Profitability declined due to product structure, and R&D investment continued to increase:

In the first half of 2023, the company achieved a gross profit margin of 30.37%, down 1.45 percentage points from the previous year. Among them, Q2 achieved a gross profit margin of 33.01% in a single quarter, an increase of 0.35 percentage points over the previous year and an increase of 5.62 percentage points over the previous year. In the first half of 2023, the company achieved a net interest rate of 9.80%, down 2.42 percentage points from the previous year. Among them, Q2 achieved a net interest rate of 9.14% in a single quarter, down 2.34 percentage points from the previous year and 1.40 percentage points from the previous year. The decline in profitability is mainly due to changes in the company's product structure and an increase in the share of the new energy business, which has a relatively low gross margin. The company continues to increase R&D investment. In the first half of 2023, R&D investment reached 56 million yuan, an increase of 15.60% over the previous year, and R&D investment accounted for 8.28% of revenue. The company currently has 645 technical personnel, many high-end core technical talents in the industry, has independent design and development capabilities, design and development software is widely used, and can comprehensively carry out various connector type tests and routine tests. As of the end of June 2023, the company and its subsidiaries had a total of 608 patent authorizations, including 89 invention patents.

The development of the automotive and energy information sector continues to improve, and liquid-cooled charging gun products have obtained international market supply qualifications:

According to the company announcement, the company's automotive and energy information sector products include high voltage connectors and wiring harness components, high voltage junction boxes (PDU) /BDU, charging/exchange interfaces and wiring harnesses, AC/DC charging guns, high-power liquid-cooled DC charging guns, communication power/signal connectors, energy storage connectors, high-speed connectors, etc. Among them, automotive products provide overall solutions for high-voltage and high-current interconnection systems for new energy vehicles, and have entered BYD, Huawei, Geely, Great Wall, Chery, Changan, SAIC, FAW, Guangzhou Automobile, BAIC, Honda, etc. Supply chain system for first-tier brands and joint ventures; energy Information products are mainly used in communication base stations, various types of communication network equipment and energy storage equipment, etc., and support services for companies such as ZTE, Datang, and Vidi. According to the company announcement, the liquid-cooled European standard DC charging gun from Sichuan Yonggui, a wholly-owned subsidiary of the company, has passed CE, CB, and T? V certification indicates that the company has obtained the international market supply qualification for liquid-cooled CCS2 charging guns, enriching the market layout of the company's European standard electric vehicle charging product line. At present, the company's European standard AC guns, and European standard liquid-cooled DC guns have all obtained corresponding certifications, which has created favorable conditions for the company to further develop foreign markets and has a positive impact on the company's overseas business expansion.

Investment advice:

The company is a leading enterprise in the domestic rail transit connector industry. We expect the company to achieve operating income of 19.32/25.54/3.92 billion yuan in 2023/2024/2025; net profit of 2.01/2.80/352 million yuan; corresponding to EPS of 0.52/0.73/0.91 yuan.

We gave the company 28 times PE in 2023, corresponding to a six-month target price of 14.56 yuan, and maintained a “buy-A” investment rating.

Risk warning: The rise in raw material prices exceeded expectations, sales of new energy vehicles fell short of expectations, the liquid-cooled overcharging market promotion progress fell short of expectations, the boom in the rail transit industry fell short of expectations, and the calculation assumptions fell short of expectations.