Incident: The company released its annual report on 23 H1, with revenue of 250 million yuan +3.24%; net profit of 42 million yuan, -19.58%; net profit after deducting non-return net profit of 40 million yuan -26.61%; gross profit margin of 34.19% year-on-year -1.16 pcts; net interest rate of 16.48% yoy -5.19pcts. Our review is as follows:

23H1's net profit declined year on year, mainly due to factors such as increased financial and management expenses and weak demand for N company consoles and XR. The company's 23H1 revenue was 250 million yuan, +3.24%; net profit of 42 million yuan, year-on-year, -19.58%; net profit after deducting non-attributable net profit of 40 million yuan, -26.61%; gross profit margin of 34.19%, year-on-year -1.16 pcts; net interest rate 16.48%, year-on-year -5.19pcts. The slowdown in revenue growth was mainly affected by weak demand for N company game consoles and XR, but automation equipment brought a certain revenue contribution. The decline in profit stemmed from: 1) Increased financial expenses, including net interest expenses of RMB 4.8863 million, mainly due to the purchase of new factories to increase fixed asset loans and large loans for connector expansion project infrastructure, which led to higher interest expenses; due to exchange rate fluctuations, net exchange income was drastically reduced, -65% year-on-year to 4.7908 million yuan; 2) Management expenses increased significantly, +23.54% year-on-year to RMB 23349,900, stemming from the new business activities of Zhishang Lightspeed and We SumVietnam./Expenses such as travel expenses There has been an increase; 3) The decline in gross margin is mainly due to a decline in the share of the game console parts business, which has a high gross margin.

The game console parts and connectors business is under pressure, and the automation equipment business is growing. By business, 23H1, 1) Game console components: Revenue was 149 million yuan, -4.49% year-on-year, mainly due to the decline in sales of game consoles by Company N, which led to a decrease in sales of products such as slides, etc., but the company was reducing its impact by increasing its share; the gross profit margin was 38.25%, year-on-year -3.78 pcts, mainly due to the decline in the share of slide rails and VR joystick products with high gross margins.

2) Connectors: Revenue was 70 million yuan, -6.56% year on year, gross profit margin of 24.38%, +2.11 pcts year on year. The decline in revenue was mainly due to weak demand for electronic connectors, but the performance of optical fiber connectors was relatively steady. We SumVietnam began contributing revenue, achieving revenue of 1,8721 million yuan. 3) Precision manufacturing and others: Revenue was 22 million yuan, +219.06%, gross profit margin of 24.15%, and +9.15% year-on-year, mainly due to growth in the new automation equipment business.

Downstream demand for 23H2 is expected to be better than in the first half of the year, and the cost side may ease somewhat, and growth in various businesses such as Company N game console+XR+ optical communication can be expected. Game consoles will enter the traditional peak sales season in the second half of the year. It is expected that demand for game consoles from Company N will be better than in the first half of the year. At the same time, joystick products are expected to contribute to the launch of Quest 3 in the second half of the year. Vietnam's We Sum optical communication business has just begun to contribute revenue, and is expected to contribute more revenue in the second half of the year. On the cost side, considering the financial cost savings brought about by capital raising, it is expected that financial expenses may improve to a certain extent in the second half of the year. In the medium to long term, we recommend focusing on the following growth logic: 1) Consoles and XR:

Although the short-term sales volume of Switch declined as it entered the 7th year of its life cycle, the next generation of products is in the development stage and is expected to bring new momentum in the future. Zhishang is one of the few parts supply chains of Company N in China, and there is still room for future market share growth and category expansion. In addition, leading manufacturers such as Meta/Sony/Pico for the company's cards provide joysticks, game console connectors, etc., which are expected to benefit from the launch of new XR products and the increase in PS5 sales. 2) Optical communication: Optical fiber connectors will have growth prospects as downstream computing power demand increases and MPO technology card slots will grow in the future. Holding Fukoshima is expected to enhance synergies, and Fukoshima's leading plug-in product capabilities will further form a collaborative support with the company's existing optical communication products. Furthermore, we Sum, a joint venture between the company and Senko, is mainly aimed at developing optical fiber connector business, which is expected to bring considerable growth elasticity.

Maintain a “Highly Recommended” investment rating. The company is one of the few domestic manufacturers specializing in the production of game console parts, and has been in the fields of optical fiber and electronic connectors for many years. At the same time, it is also expanding the automation equipment business. As downstream demand gradually improves, the company's product categories and share continue to increase. Fund-raising projects expand the company's production capacity and are expected to open up new growth space for the company. Based on the latest financial report, we adjusted 23/24/25 revenue to 662/908/1,191 million yuan, net profit to parent to 122/1.71/220 million yuan, and corresponding EPS of 0.95/1.33/1.71 billion yuan. Considering that the company is a scarce domestic supplier of game console components to Company N, and that the optical communication+VRAR business is expected to open up a new growth curve, future downstream product releases, company category expansion, and new business expansion are expected to bring flexibility beyond expectations in performance and maintain a “highly recommended” investment rating.

Risk warning: Risks such as high customer concentration, changes in end customer demand, increased market competition, raw material price fluctuations, and exchange rate fluctuations.