At 2023H1, the company achieved revenue of 679 million yuan, +0.05% year on year; realized net profit of 69 million yuan, or -15.27% year on year. The decline in rail transit business has dragged down the company's short-term performance, and the company's NEV business has maintained steady growth. At present, the company continues to deepen cooperation with BYD, Huawei, Geely, Great Wall, Chery, Changan, etc. in the field of new energy vehicle connectors, and has a leading edge in the field of high-power liquid-cooled DC charging guns. It is optimistic that the company's NEV business will continue to develop rapidly and resume rail transit business in the future. We gave the company 35x PE in 2023, corresponding to a target price of 16 yuan, and maintained the “buy” rating.

Short-term performance is under pressure, and we are optimistic that the NEV and rail transit business will recover in the second half of the year. 2023H1, the company achieved revenue of 679 million yuan, +0.05% year on year; realized net profit of 69 million yuan, year on year, -15.27%, net profit of 63 million yuan after deducting non-return net profit of 63 million yuan, year on year, -15.89%; gross profit margin of 30.37%, year on year -1.45 pcts; net interest rate of 9.80%, year on year -2.42 pcts. In the second quarter of 2023, the company achieved revenue of 360 million yuan, -4.95% year on year; realized net profit of 34 million yuan, -21.04% year on year; realized net profit of 32 million yuan after deducting non-return net profit of 32 million yuan, -18.86% yoy; gross profit margin of 33.01%, +0.35 pct year on year; net interest rate of 9.14%, year on year -2.34 pcts.

2023H1's short-term performance is under pressure, mainly due to a decline in revenue from the high-margin rail transit business. Additionally, the company first granted restricted shares on October 28, 2022, and began amortizing fees for restricted shares on a monthly average basis starting the following month. 2023H1. The share payment fee for equity incentive shares to be shared is 7.4662 million yuan. Without considering the impact of this share payment fee, the company achieved net profit of 76.5573 million yuan in the first half of the year, a decrease of 6.12% compared to the same period last year. We are optimistic that the company's high voltage connectors for new energy vehicles and high-power liquid-cooled DC charging guns will continue to grow rapidly. It is expected that with the resumption of domestic subway and train construction, the company's rail transit business revenue is expected to improve.

New energy vehicle business: Liquid-cooled supercharger technology is leading, and we are optimistic that the new energy business will continue to grow steadily. 2023H1, the company's NEV business revenue was 305 million yuan, +15.77% year-on-year. Currently, the company's main customers in the field of new energy vehicles include automakers such as BYD, Huawei, Geely, Great Wall, Chery, Changan, SAIC, FAW, GAC, BAIC, and Honda. BYD is the company's core customer in the field of new energy. The company is leading in liquid-cooled supercharger technology. Currently, customers include Geely, Huawei, and Ideal. In July 2023, the company held a “liquid-cooled system/ high-power charging gun” product launch conference. At the conference, Yonggui launched the latest liquid-cooled charging products and cutting-edge high-power charging technology. The company's liquid-cooled charging gun can meet the maximum rated 600A continuous working current. On the industry side, domestic production and sales of new energy vehicles and the increase in charging stations are growing rapidly. According to the China Automobile Association, 2023H1 sold 3.747 million new energy vehicles in China, +44.1% year-on-year. According to the China Charging Alliance, as of June 2023, member units within the Alliance have reported a total of 2.149,000 public charging stations, including 822,000 DC charging stations and 1,136 million AC charging stations. According to the company's equity incentive announcement, the conditions for unlocking restricted shares are that Sichuan Yonggui's revenue for 2022-2025 is not less than 8/12/17/2.4 billion yuan, respectively. Sichuan Yonggui is a core subsidiary of the company's NEV business. We are optimistic about the increase in domestic share of the company's NEV connector and charging gun business and its accelerated overseas expansion.

Rail transit business: Under pressure in the short term, it is expected to gradually resume. The company's products in the rail transit field mainly include connectors, shock absorbers, door systems, axle measuring signal systems, passages, pantographs, battery boxes, etc. The main customers are CRRC and various subway companies. 2023H1, the company's rail transit revenue was 311 million, -11.45% year on year; gross profit margin was 40.51%, year on year -0.25 pct. 2022Q3-2023Q2, the company's rail transit business is under pressure. We expect that with the recovery in domestic subway and train tenders, the company's rail transit business revenue is expected to gradually recover.

Looking at the long term, we are optimistic about the country's continued investment in rail transit business during the “14th Five-Year Plan” period. According to the “14th Five-Year Plan” Modern Integrated Transportation System Development Plan, in terms of facility networks, the operating mileage of railways is expected to reach 165,000 kilometers in 2025, with an average annual increase of 3,800 kilometers, of which the operating mileage of high-speed railways will reach 50,000 kilometers, with an average annual increase of 2,400 kilometers; it is estimated that the operating mileage of urban rail transit will reach 10,000 kilometers in 2025, with an average annual increase of 680 kilometers. Optimistic about the country's continued investment in the rail transit sector, the company's rail transit business is expected to resume.

Risk factors: sales volume of new energy vehicles fell short of expectations; competition in the industry increased risk; high voltage connector prices fell short of expectations; charging pile construction fell short of expectations; development of the company's high-power liquid-cooled DC charging guns fell short of expectations; the company's rail transit connector business revenue grew less than expected; the company's gross margin fell short of expectations; the company's new customer expansion fell short of expectations.

Profit forecast, valuation and rating: 2023H1, the company achieved revenue of 679 million yuan, +0.05% year on year; realized net profit of 69 million yuan, -15.27% year on year. The decline in rail transit business has dragged down the company's short-term performance, and the company's NEV business has maintained steady growth. At present, the company continues to deepen cooperation with BYD, Huawei, Geely, Great Wall, Chery, Changan, etc. in the field of new energy vehicle connectors, and has a leading edge in the field of high-power liquid-cooled DC charging guns. It is optimistic that the company's NEV business will continue to develop rapidly and resume rail transit business in the future. We expect the company's net profit to be 181 million, 255 million, and 343 million yuan for 2023-2025 (the original forecast value for 2023-2025 was 210 million/274 million/359 million. Considering the decline in the company's rail transit business revenue, we lowered the company's profit forecast). Referring to comparable companies Recoda, China Aviation Optoelectronics, Huafeng Technology, Electric Connection Technology, and Weifeng Electronics, the current price corresponds to the average PE value of 35X in 2023 (Wind agreed expectations). We gave the company 35x PE in 2023, corresponding to a target price of 16 yuan, and maintained a “buy” rating.