Incident: The company released its semi-annual report for 2023. 23H1 achieved operating income of 700 million yuan, an increase of 10.60%; net profit of 78.8621 million yuan, an increase of 1.1%; net profit of non-return net profit of 704.6879 million yuan, an increase of 6.83%.

Revenue grew steadily, and profitability declined slightly

The company's revenue increased steadily and profit was basically the same year-on-year: 1) Electronic ceramic cases for communication devices mainly include optical communication device cases, wireless power device cases, and infrared detector cases. 23H1 revenue was 520 million yuan, an increase of 10.25%; 2) Consumer electronic ceramic cases and substrates revenue was 951529 million yuan, a slight increase of 0.11% over the previous year; 3) The company's revenue of automotive electronic components was 47.7515 million yuan, an increase of 46.60%; 4) The company added revenue of precision ceramic parts of 107.23,500 yuan, and ceramic heating plates and electrostatic chucks have been used in batches Key domestic semiconductor equipment; 5) electronic outer boxes for industrial lasers: RMB 4.8875 million; 6) Other revenue was RMB 22.28 million.

Overall gross margin has declined, and cost control is good

23H1's comprehensive gross margin was reduced by 2.25 pct to 25.90%. Among them, the gross margin of electronic ceramic cases for communication devices and consumer electronic ceramic case & substrate businesses decreased by 2.15/2.27 pct, respectively; the net profit margin for return decreased by 1.05 pct over the same period last year to 11.26%. The company's cost rate for the period was reduced by 1.49 pct, and the sales/management/R&D/financial expense ratio changed by +0.22/+0.16/-1.98/+0.11 pct, respectively. The change in the sales cost rate was mainly due to an increase in travel expenses etc. after the epidemic recovered. The appropriate reduction in the R&D expense rate mainly benefited from a decline in direct investment in materials, etc.

The comprehensive distribution of communication device shell products is expected to benefit from the high prosperity of optical devices. The ceramic shell used for communication devices accounts for 74% of the company's revenue, which is the main source of performance. The shell of the optical communication device has good mechanical support and airtight protection, and can achieve high-speed electrical-optical signal conversion, coupling and transmission. The product can be applied to module products with transmission rates of 2.5 Gbps-800 Gbps, etc., and is used in scenarios such as optical fiber backbone networks, metropolitan area networks, broadband access, CATV, Internet of Things, and data centers. We believe that since this year, the accelerated layout of major cloud vendors in terms of AI models is expected to accelerate the construction of data center computing power infrastructure, communication devices such as optical modules are expected to usher in a boom period, and the company is also expected to benefit from the accelerated development of the optical device industry.

The precision ceramic parts business was added, benefiting from the independent and controllable semiconductor equipment company. Precision ceramic parts are core components for semiconductor equipment prepared using advanced ceramics such as alumina and aluminum nitride after precision processing. They mainly include ceramic heating plates and electrostatic chucks. The ceramic heating plate has the advantages of good temperature uniformity, high control accuracy, high dimensional accuracy, and corrosion resistance. As a key component of the device in the semiconductor process, it is in direct contact with the wafer, so that the surface temperature of the wafer can be controlled with high accuracy and rapid heating and cooling. The electrostatic chuck uses the principle of electrostatic adsorption to hold the wafer and maintain a good flatness without damage. It is an ultra-clean wafer carrier suitable for vacuum environments or plasma environments. The core technical indicators of the ceramic heating plate products developed by the company have reached the level of similar international products and passed user verification, so that key components have been localized, and have been used in batches in key domestic semiconductor equipment.

Investment advice: Previously, we expected the company's net profit to return to parent for 23-24 to be 193/232 million yuan, respectively.

Due to a decline in gross margin in the first half of 23, we adjusted 23-24 years and added a 25-year net profit forecast of 175/234/303 million yuan. The corresponding PE was 187/140/108 times, respectively, maintaining the “increase in holdings” rating.

Risk warning: Risks related to international trade friction, risk of increased market competition, risk of rising raw material prices, risk of technological upgrading.