Incident: The company released the 2023 semi-annual report. In 2023, H1 achieved revenue of 1,776 million yuan, -16.17%; realized net profit of 125 million yuan, -10.51% year-on-year; achieved non-net profit of 110 million yuan, -2.04% year-on-year. On a quarterly basis, in Q2 2023, the company achieved revenue of 1,087 billion yuan, +3.87% year-on-year, +57.78%; achieved net profit of 188 million yuan, -5.61% year-on-year, and +138.77% month-on-month; achieved non-net profit deduction of 78 million yuan, +0.98% year-on-year, and +143.35% month-on-month.

Q2 performance improved dramatically, and automotive electronics performed brilliantly: The short-term pressure on H1's performance in 2023 was mainly due to weak demand for downstream consumer electronics, and the decline in the consumer electronics business, which accounted for the largest share, dragged down performance. With the arrival of the traditional peak season for consumer electronics in the second half of the year and the growth of new businesses such as automotive electronics, the company's business may return to a good trend. By product, H1 consumer electronics revenue was 1,376 million yuan, -19.00% year on year; automotive electronics revenue was 220 million yuan, +574.77% year on year. In 2023, H1's gross margin was 17.41%, year-on-year -2.23pcts; net margin was 6.42%, year-on-year -1.56pcts. Q2 gross margin was 18.53%, -2.97 pcts year on year, +2.88 pcts; net margin was 7.83%, year on year -1.68 pcts, +3.63 pcts month on month. Q2 The sharp month-on-month improvement on the profit side is mainly due to the company's active expansion of business in emerging fields such as automotive electronics while consolidating its basic consumer electronics business. In terms of expenses, H1 sales/management/R&D/finance expenses in 2023 were 0.12/1.25/0.58/-113 million yuan, respectively. The year-on-year changes were -16.36%/-8.97%/-0.74%/-209.50%, respectively. Among them, the sharp decline in financial expenses was mainly due to an increase in deposit interest income and exchange earnings.

Demand for consumer electronics picked up, focusing on the pace of new machines being picked up in the second half of the year: In terms of smartphones, tablets, and network terminal products, the company successfully entered the supply chain of world-renowned brands such as Xiaomi, Honor, Huawei, Samsung, and OPPO, as well as leading ODM companies such as Wingtech Communications, Huaqin Technology, and Longqi Technology. As we enter the traditional peak season in the second half of the year, the recovery in consumer electronics demand is expected to drive the company's performance to recover. The Guanghong Phase III intelligent production base began to be gradually opened in 2021. After the project is completed, it will achieve an annual output of 42 million 5G smartphones, 3 million enterprise-grade routers, and 2 million switches, which will help guarantee the company's production capacity growth over the next three years. As Huawei is expected to release new devices in September, the company's consumer electronics business is expected to benefit from customer stocking requirements.

The premium race track for automotive electronics and new energy is expected to open up incremental space: the company has been actively laying out emerging businesses such as automotive electronics in recent years, and has entered a high-quality race track with a high boom in new energy in 2022. In the field of automotive electronics, the company has successfully entered the supply chain system of well-known auto parts suppliers Valeo, Continental, and Nippon Denso, providing automotive electronic component manufacturing services for well-known automobile brands including BMW, Audi, Volkswagen, and Nissan.

The company invests in Yijia Intelligence and holds 15% of the shares. Yijia Smart's products and customer resources will help the company expand its automotive electronics business. The company's automotive electronics business is expected to achieve rapid growth with customer resource advantages. In the field of new energy, in addition to various photovoltaic inverters, the company also includes products in many fields such as portable energy storage, household energy storage systems, smart charging piles, and power management systems for new energy vehicles. As more projects move into mass production and new projects for potential new customers are further expanded, the new energy business will become an important growth point for the company's revenue.

Maintaining the “increase in holdings” rating: As a leading EMS manufacturer in China, while maintaining steady growth in its core consumer electronics business, the company is actively expanding emerging businesses such as automotive electronics and new energy. It is expected to open up incremental space in the future, which is an important driving force for the company in the future. The company is steadily advancing its global layout strategy. Overseas production bases in Vietnam, India, and Bangladesh are gradually releasing production capacity in an orderly manner, and the company's future performance growth is fully guaranteed. The company's net profit for 2023-2025 is estimated to be 359/439/526 million yuan, the corresponding EPS is 0.47/0.57/0.68 yuan, and the corresponding PE is 22/18/15 times.

Risk warning: There is a risk of fluctuations in the international political and economic situation, downstream demand falling short of expectations, new business development falling short of expectations, and the impact of exchange rate fluctuations.