Key points of investment
Incident: The company released its annual report of 23 million yuan (-6.99%), 23H1 achieved revenue of 2,224 million yuan (-6.99% YoY), net profit of 66 million yuan (-63.12%), net profit of non-attributable net profit of 59 million yuan (-50.56%); 23Q2 achieved revenue of 1,287 million yuan (-4.32%) in a single quarter, and net profit of 51 million yuan (-62.39%), net profit of 51 million yuan (-62.39%), after deducting non-attributable net profit of 49 million yuan (-38.92%).
Comment: Continued improvements over the previous month and low expectations of progress at US factories dragged down Q2 results. Specifically, in the first half of the year, the company's connector business achieved revenue of 794 million yuan (-17.96% year on year), and gross margin increased slightly by 4 pct to 30.53% year on year; connector revenue declined, mainly due to weak demand for consumer electronics, communications, etc. connectors in the first half of the year, but the company improved its cost control capabilities, which led to an increase in gross margin. In terms of photovoltaic stents, the company achieved revenue of 1,369 billion yuan (+4.81% year on year) in the first half of the year, and gross margin fell 1.50 pct to 10.15%. The main reason was that the company's production base set up in the US was under construction and could not be released. As a result, orders from US customers were delayed, and the share of orders from domestic customers with low gross margins increased, causing the company's gross margin to decline slightly.
Demand for photovoltaics in the US is booming. The company's US plant has now obtained a production license, and is expected to contribute to performance in the third quarter. After the US factory is built, the company is deeply bound to US customers; processing costs at US factories will increase significantly compared to Thailand, and upfront capital turnover pressure is expected to decrease drastically. Recently, the price of silicon materials has continued to drop, which may further stimulate the installed demand for terrestrial photovoltaic power plants. Meanwhile, in 2022, the company's new European tracking bracket lead orders were gradually released, and it is expected to further contribute to revenue.
Automotive connectors are of high quality, and the business has entered a harvest period of order volume. The company is developing into the automotive high-frequency high-speed field, with a high entry threshold, strong profitability, and deep ties to Huawei. At the same time, it has expanded into BYD, Geely, etc., and gradually became a first-tier supplier. Under the volume of orders, the company's automotive connector business turned a loss into a profit in 2021.
Currently, products such as BMS connectors and ECU connectors are the main source of revenue. In the future, connectors such as high-frequency high-speed Ethernet, sensors, and cases (lidar, millimeter wave radar) are expected to further contribute to increased performance.
Profit forecast: Net profit for 2023-2025 is expected to be 234, 3.85, and 463 million yuan, corresponding to about 25.2, 15.4, and 12.8 times PE on August 28.
Risk warning: Competition in the industry has intensified, orders from major customers have fallen short of expectations, policy adjustments are at risk, and raw material prices have risen sharply.