In the first half of 2023, the company achieved revenue of 415 million yuan, -14.35% year-on-year, and net profit of 38 million yuan, -28.89% year-on-year. The company's performance in the first half of the year was in line with expectations. The decline in defense revenue and weakening demand for communication equipment dragged down the company's short-term performance. Currently, the company's high-speed backplane connectors have broken the monopoly of overseas leaders and are widely used in high-end routers/switches and AI server clusters. Demand for profoundly beneficial computing power is exploding.
In the first half of the year, the company's CPU socket was selected as a key customer. The company has mastered a number of connector standards, and its competitive advantages in the fields of defense/new energy vehicles/rail transit are prominent. We are optimistic about the improvement in the company's overall competitiveness and rapid growth in performance.
The performance is in line with expectations, and we are optimistic about long-term steady growth. In the first half of 2023, the company achieved revenue of 415 million yuan, -14.35%; net profit of 38 million yuan, year-on-year, -28.89%; net profit after deducting non-attributable net profit of 26 million yuan, -40.07% yoy; gross profit margin of 29.23%, -1.89 pcts; and net interest rate of 8.63%, -1.54 pcts.
2023Q2, the company's revenue was 237 million yuan, -29.56% year on year; net profit was 26 million yuan, -51.85% year on year; net profit after deducting non-return net profit of 210 million yuan, was -57.05% year on year. The company's performance in the first half of the year was under pressure, mainly due to a decline in sales of defense products. Furthermore, weak short-term demand for ICT equipment also hampered the company's communications business. In terms of expenses, in the first half of the year, the company invested 43.5 million yuan in R&D, +6.09% year-on-year, and R&D rate of 10.48%, +2.09 pcts; sales expenses of 115 million yuan, -26.44%, were mainly due to a decline in sales business and a decrease in product warranty costs; and management expenses of 50 million yuan, +10.95% year-on-year, mainly due to an increase in the number of managers and employee remuneration of the company's investment holding subsidiaries. We expect the company's long-term performance to grow steadily with the resumption of mining in the defense sector and an increase in the boom in communication equipment.
The decline in revenue from defense products is dragging down short-term performance, and I am optimistic about the long-term space of the three businesses of computing power+defense+new energy.
1) Communications: The company focuses on product technologies such as backplane connectors, power connectors, RF connectors, and cable components, and has formed a series of high-speed backplane connector products with great influence and competitiveness, including various speeds. In the first half of the year, due to weakening domestic demand for servers and switches, and low customer demand in the company's communications industry, the company's communications business was affected to a certain extent. I'm optimistic about the company's high-speed backplane connectors and CPUSOCKET's long-term growth space.
2) Defense: The company's defense products are divided into three categories, including system interconnection products, defense connectors, and components. The company is qualified to supply leading defense enterprises such as Aerospace Science and Industry, China Telecom, and China Military Engineering. In the first half of the year, orders for mass-produced products in the company's defense sector slowed down. Looking forward to the future, with the acceleration of national defense construction, demand for connectors is expected to continue to rise.
3) New energy vehicles: From multiple application dimensions such as single/multi-integration, charging/power exchange, and BEV/PHEV, the company provides solutions and product services such as high-voltage wiring harnesses, charging and distribution system assemblies for new energy vehicle batteries, electric drives, and electronic control systems. The main customers include SAIC-GM-Wuling, BYD, and Changan. In the first half of the year, the domestic NEV market was affected by falling prices for traditional vehicles. Q1 sales declined somewhat, and Q2 began to gradually recover. We expect the company's revenue in the NEV sector to improve in the second half of the year.
Product and customer development: 112G high-speed backplane products are produced in small batches, and CPU SOCKET has been selected by key customers. In the first half of 2023, some of the company's new products and new customer breakthroughs were as follows:
1) High-speed backplane connector: The company began small-batch production of 112G high-speed backplane products based on orthogonal architecture. The single connector includes 96 pairs of differential high-density signal transmission. It is used in large-scale frame-type digital routing equipment for communication, achieving a single-board data transmission capacity of 21.6 Tbps.
2) CPU SOCKET: The company was successfully shortlisted as a domestic CPU socket supplier for an important customer.
3) New energy vehicle connectors: The company's products related to the NEV industry have obtained supply qualifications from Changan Automobile.
4) Aerospace: The company has added an important series of high-speed connectors that are resistant to aerospace environments. Its transmission rate can reach 40 Gbps. It is currently the highest transmission rate for aerospace high-speed connectors in China, and can be widely used in aerospace projects such as satellites, spacecraft, and space stations.
Risk factors: The development of the company's high-speed backplane connectors falls short of expectations; AI development falls short of expectations; sales volume of new energy vehicles falls short of expectations; investment in defense construction falls short of expectations; competition in the connector industry is increasing risks; connector prices fall short of expectations; the company's gross margin falls short of expectations; the company's new customer expansion falls short of expectations.
Profit forecast, valuation and rating: In the first half of 2023, the company achieved revenue of 415 million yuan, -14.35% year-on-year; net profit of 38 million yuan, -28.89% year-on-year. The company's performance in the first half of the year was in line with expectations. The decline in defense revenue and weakening demand for communication equipment dragged down the company's short-term performance. Currently, the company's high-speed backplane connectors have broken the monopoly of overseas leaders and are widely used in high-end routers/switches and AI server clusters. Demand for profoundly beneficial computing power is exploding. The company's CPU socket has been designated as a key customer. The company has mastered a number of connector standards, and its competitive advantages in the fields of defense/new energy vehicles/rail transit are prominent. We are optimistic about the improvement in the company's overall competitiveness and rapid growth in performance. We maintain our estimated net profit for 2023-2025 to be 104 million, 157 million, and 230 million yuan, respectively. The current market value corresponding to PE in 2023-2025 is 98x/66x/45x, respectively.