Key points of investment

Announcement: The company released its semi-annual report for 2023. In the first half of 2023, it achieved operating income of 5.91 billion yuan, a year-on-year decrease of 16.51%, realized net profit of -132 million yuan, compared to -267 million yuan for the same period last year, realized net profit of -182 million yuan after deducting non-attributable net profit of -182 million yuan, and -260 million yuan for the same period last year. In the 2023 Q2 single quarter, the company achieved revenue of 2,901 billion yuan, a year-on-year decrease of 16.43%, realized net profit of 50 million yuan, compared to -72 million yuan in the same period last year, achieved net profit of -86 million yuan after deducting non-attributable net profit of -86 million yuan, and -32 million yuan for the same period last year.

Revenue from the consumer electronics business declined due to sluggish demand, and was deeply tied to major customers to increase R&D. According to TechInsights, in 2023 H1, Macbook shipments were 8.4 million units, or -21.82% year-on-year. Affected by this, the company's consumer electronics revenue was 4.211 billion yuan, -25% YoY, and gross margin was 18.00%, +5.72 pct. However, the company actively cooperated with major customers in research and development. In terms of titanium alloy materials, the company cooperated with major customers to implement the full process process and await mass production of the project; in terms of fiber materials, due to their light weight and high mechanical strength, they are more suitable for wearable products. The company already has the ability to produce and process fiber materials, and has cooperated with major customers to develop projects and successfully deliver samples. In addition, the company has also developed a slurry forging production process, which can greatly improve the utilization rate of hard metal materials such as titanium alloy. MR Headphones, a major customer, has been released. The supercompany has actively invested in R&D, applied for 10 patents in the field of headset processing during this reporting period, and raised a fixed increase of 500 million yuan for AR/VR related projects to further support major customers, and is expected to benefit from a new round of consumer electronics innovation.

The new energy business grew rapidly, and gross margin improved year-on-year. The global demand and penetration rate of new energy vehicles is rapidly increasing. The company is seizing market development opportunities, and the new energy business is developing rapidly. In 2023, H1, the company's new energy business achieved revenue of 1,384 billion yuan, +31.95% percent year-on-year, accounting for 23.42% of revenue, and gross margin of 17.88%, +3.43% year-on-year. The company is actively investing in the field of new energy, raising a fixed increase of 1.47 billion yuan for power and energy storage related projects, and continues to expand production to meet the needs of downstream customers. In the future, the new energy business is expected to become an important source of revenue and profit contributions for the company.

Both gross margin and net interest rate have improved, and investment in R&D has been further increased. In Q2 2023, the company's gross margin was 17.60%, +2.06pct year on year, and net margin was -1.20%, +0.91 pct year on year. In Q2 2023, the company's sales, management, and financial expenses rates were 1.18%, 6.95%, and -1.47%, respectively, compared to +0.60 pct, +1.82 pct, and +0.50 pct. In Q2 2023, the company's R&D cost rate was 11.11%, +3.44ct year on year. The company focuses on R&D investment, deeply supports customers for technology and product-related research and development, and high R&D investment guarantees the core competitiveness of the company's products.

Profit forecast and investment suggestions: Considering that the computer business of major customers is still under pressure+lithium battery factory growth falls short of expectations, we have slightly revised the company's profit forecast. We expect the company's revenue for 2023/2024/2025 to be 139.93, 180.44 and 23,080 billion yuan, respectively, -8.0%, +29.0%, and +27.9%, with net profit of 1.03, 6.95 and 1,005 billion yuan, respectively, 141.8%, +575.5% and +44.6%, corresponding to August 30, 2023 PE's closing price was 115.3, 17.1, and 11.8 times, respectively, maintaining the “increase in holdings” rating.

Risk warning: Downstream demand falls short of expectations, competition in the structural parts industry intensifies, and new products from major customers fall short of expectations.