Event: according to the company's semi-annual report in 2023, H1 Company realized revenue of 2.076 billion yuan, year-on-year-2.00%, net profit of 85 million yuan, year-on-year-76.89%, and deducted non-net profit of 68 million yuan,-66.05%. From a quarterly point of view, the company's 2023 Q2 realized revenue of 1.142 billion yuan, year-on-year + 12.37%, month-on-month + 22.25%; realized return-home net profit of 27 million yuan, year-on-year-85.75%, month-on-month-54.11%; realized deduction of non-net profit of 36 million yuan,-55.59%, month-on-month + 14.20%.

Weak demand H1 performance decline, Q2 profitability improved month-on-month: due to macroeconomic and market demand recovery is less than expected, the operating performance of H1 company declined in 2023 compared with the same period last year. In 2023, H1 company's gross profit margin was 12.97%, year-on-year-10.73pcts; net profit rate was 4.45%, year-on-year-13.05pcts. Q2 in 2023, in addition to the three main products of MLCC, chip resistors and inductors, other small products of the company go hand in hand, and the gross profit margin continues to rise. Q2 company gross profit margin is 14.51%, month-on-month ratio + 3.43 pcts; net profit rate is 2.74%, month-on-month ratio is-3.81 pcts. Among them, Q2 net interest rate dropped sharply from the previous month, mainly due to the sharp increase in asset impairment losses and credit impairment losses. In terms of expenses, the rate of sales, management, R & D and financial expenses of H1 company in 2023 was 1.53%, 5.94%, 4.95%, 4.72%, and the year-on-year change was-0.17/-0.22/+0.22/-2.13pcts. Among them, the financial expense rate and absolute value have decreased compared with the same period last year, mainly due to the funds raised by the company in April 2022, and the increase in H1 interest income this year compared with the same period last year.

High-end R & D + market development is progressing smoothly, project expansion and enabling performance growth: the company focuses on high-end technology research and development, increase market development efforts and steadily promote project construction, the company's core competitiveness continues to improve.

On the one hand, the company added 12 new specifications for high-end MLCC delivery, of which 5 specifications were delivered in small batches, the high-capacity MLCC voltage level was increased by more than 2 grades, and the company's high-capacity product research and development and product conversion rate were further improved. In 2023, H1 Company exported four key materials, which is the first company in China to complete the research and development of new high-reliability high-voltage ceramic materials and copper electrode paste for thick film resistors. Among them, copper electrode paste for thick film resistors has been delivered in small batches, greatly improving the rated voltage and reliability of MLCC. On the other hand, on the basis of stabilizing the traditional consumer market, the company has increased the market development efforts in new energy vehicles, industrial control and other application fields, continued to increase the promotion and application of high value-added products for major terminal customers, and introduced some industry leaders to carry out factory inspection and certification, some products have been sold in the head manufacturers, and sales of key customers such as 5G communications and industrial control increased in the first half of the year compared with the same period last year. In addition, the product yield of the company's Xianghe project and the core strategic customer coding product yield have been greatly improved, and the third phase of the Xianghe project, which locates the industrial and high-end consumer markets, has been officially put into trial production. At present, the technical transformation and expansion project of "monthly production of 4 billion laminated inductors" and "monthly production of 100 million integrated molded inductors" has been completed and started. Benefiting from the vigorous development of emerging strategic industries such as 5G communications, new energy vehicles, the Internet of things and new mobile intelligent terminals, the market demand for high-end electronic components is stable, and the performance of the company's projects is growing.

The fixed increase will help the transformation and upgrading, and the automotive and electrical business is expected to build the second revenue growth pole: in 2022, the company will successfully complete the 5 billion yuan non-public offering project, and all the funds raised will be used for the construction of the "high-end capacitor base construction project of Xianghe Industrial Park" and the "new monthly production of 28 billion chip resistors for technical transformation and expansion project" construction.

The implementation of the non-public offering project will further increase the scale of high-tech content, high value-added MLCC and chip resistor products on the premise of consolidating the company's existing technology, quality and supply guarantee advantages; at the same time, through in-depth linkage with strategic customers, speed up the layout of high-end markets such as next-generation mobile communication technology, automotive electronics and industrial intelligent control, and comprehensively enhance the overall market competitiveness of the company. According to the forecast of JWinsight, the global vehicle MLCC consumption will increase to about 650 billion in 2025, and the vehicle MLCC consumption in China will increase from about 150 billion in 2021 to more than 280 billion in 2025. In addition, new energy vehicles are becoming the main engine of vehicle MLCC growth. It is estimated that by 2025, the MLCC consumption of new energy vehicles will exceed 330 billion, becoming the main growth driver of MLCC after 5G. Since 2022, the company has actively laid out high-end application fields such as automotive electronics and industrial control, promoted the high-end transformation of the company's business structure, achieved product grade from industrial level to automotive specification level, and continued to increase the sales of automotive products and the proportion of automotive electronic customers. In the future, with the rapid growth of the new energy vehicle industry, the company's automotive high-end electronic components are expected to usher in a major development opportunity.

Maintain the "increase" rating: at present, the company is based on the high-end industry, opening up 5G applications, new energy vehicles, photovoltaic and other benchmark customers, and achieved remarkable results. Some products have been sold in the head manufacturers, and sales of 5G communications, industrial control and other key customers increased in the first half of the year compared with the same period last year. As the company continues to deepen the layout of photovoltaic, new energy vehicles and other areas, the penetration of high-end products is expected to continue to improve, and the company is expected to enter a new round of rapid development in the future. We are optimistic about the broad growth space of the company's automotive electronics business and the company's competitive advantage in the industry, so we maintain the "overweight" rating. It is estimated that the return net profit of the company from 2023 to 2025 is 591 million yuan, 709 million yuan and 907 million yuan respectively, the EPS is 0.51,0.61,0.78 yuan respectively, and the PE is 31x, 26x and 20x respectively.

Risk hint: supply chain cost upstream risk, market demand is lower than expected risk, technological breakthrough is less than expected risk, market competition aggravates risk.