Incident: The company released the 2023 semi-annual report. In 2023, H1 achieved revenue of 1,417 billion yuan, -24.93%; realized net profit of 115 million yuan, or -112.50%; realized non-net profit deducted -19 million yuan, -114.28% year-on-year. On a quarterly basis, in Q2 2023, the company achieved revenue of 722 million yuan, -25.10% year on year, +3.94% month on month; achieved net profit of 114 million yuan, -81.20% year on year, significantly reversing losses month on month; deducted non-net profit of 0.1 billion yuan, -89.79% year on year, significantly reversing losses month-on-month.

Demand pressure dragged down H1's performance, and Q2 profits improved markedly month-on-month: The decline in the company's 23H1 performance was mainly due to a decline in laptop demand, which caused the decline in laptop structural component revenue. At the same time, the company's automotive electronics business and communication electronics business accounted for relatively little, and the impact on the laptop structural parts industry has not yet been effectively hedged. Q2 Profit improved markedly month-on-month. Profitability recovery was due to a gradual recovery in demand for notebook computers combined with magnesium-aluminum material applications for new energy vehicles and an increase in the business share of communication electronic modules to expand profit margins. In 2023, H1's gross margin was 12.91%, year on year -5.32 pcts; net margin was -1.98%, year on year -8.21 pcts; Q2 gross margin in 2023 was 11.93%, year on year -6.95 pcts, month on month -2.00 pcts; net margin was 0.97%, year on year -6.44 pcts, +6.01 pcts. In terms of expenses, sales, management, R&D, and finance expenses in Q2 in 2023 were 0.22/0.90/0.72/-0.0 million yuan respectively, a year-on-year change of +23.33%/+25.90%/-9.82%/+48.95%. The sharp increase in financial expenses was mainly due to the increase in interest accrued at actual interest rates for 570 million convertible bonds issued by companies issuing companies in the current period.

The boom in the laptop industry is recovering, and AI notebooks are expected to drive the switching cycle: According to Techinsights data, global laptop shipments in Q2 2023 fell 13% year on year to 47.4 million units, showing the first increase since 2021, indicating that the boom in the Q2 laptop industry has recovered and demand has begun to recover.

Looking ahead to Q3, TrendForce estimates that global laptop shipments will continue to improve month-on-month, and the company's performance is expected to return to the fast track of repair as the bottom of the laptop industry rebounds. In terms of hardware, a number of laptop brands are planning to launch AI laptops, and related AI notebook solutions will be launched one after another in 2024 and 2025. The AIGC big model requires laptops to have higher computing power and AI acceleration capabilities to support huge computing power resources, which is expected to bring about a new switching and upgrade cycle in the PC market. As one of the major suppliers in the laptop structural parts industry, the company is expected to be the first to benefit.

Automotive electronics is progressing smoothly, saving momentum: The company's automotive electronics business is progressing smoothly: 1) Client: The company has obtained certification from well-known automotive electronics manufacturers such as Desai Seaway, Tianma Wei, Innchuang Optoelectronics, and Changchun Fusai, and has formed cooperative relationships with many NEV manufacturers and their suppliers. Recently, the company signed a strategic cooperation agreement with Desai Seaway, further laying the foundation for business development and future in-depth cooperation. 2) Technically, the company has successfully broken through “semi-solid injection molding” technology. Compared with the traditional die-casting process, the direct product yield can be greatly improved, and the technology+cost advantage is remarkable. The company is proficient in equipment use and supporting technology, which has formed a certain industry barrier. 3) In terms of production capacity, the company raised a total of 570 million yuan for the convertible bond project issued in March 2023, and plans to invest 400 million yuan in a project that produces 5 million sets of automotive electronic magnesium-aluminum structural parts per year. The construction period of the project is 3 years. Production capacity was gradually released from the 2nd year, and full production was reached in the 4th year. The company has many years of manufacturing experience and technical advantages in magnesium-aluminum structural parts. Through semi-solid injection molding technology, effectively shortening the production process has cost advantages, and magnesium-aluminum structural parts are mainly used in the production of new energy vehicles and smart vehicles. The selling price is high, which increases the gross margin of automotive magnesium-aluminum structural parts. With the rapid rise in production and market share of new energy vehicles and smart vehicles, the company's profitability is expected to increase significantly.

Lower the profit forecast and maintain the “buy” rating: The company has cut from laptop structural parts to automotive electronic structural parts, has the latest technology for magnesium-aluminum structural parts, can obtain orders from new car builders through technical advantages and scale advantages, and quickly enter the NEV market. We are optimistic that magnesium-aluminum alloy will have a unique advantage in automotive electronics and become the company's new performance growth point in the future, but since poor demand for laptops in the first half of the year dragged down the company's performance, the profit forecast was lowered. It is estimated that the company's net profit from 2023 to 2025 will be 120 million yuan, 287 million yuan, and 401 million yuan, EPS 0.27 yuan, 0.65 yuan, 0.91 yuan respectively, and corresponding PE is 28X, 12X, and 8X respectively.

Risk warning: New business development falls short of expectations, downstream demand falls short of expectations, risk of market competition, impact of exchange rate fluctuations.