1-3Q23 performance meets our expectations

The company announced 1-3Q23 results: income 1.165 billion yuan, year-on-year + 13.96%; return to mother net profit 159 million yuan, year-on-year + 31.51% politics 3Q23 income 437 million yuan, year-on-year + 15.56%, month-on-month + 4.21%; return to mother net profit 68 million yuan, year-on-year + 39.45%, month-on-month + 26.46%. The performance is in line with our expectations.

Trend of development

The repair of automobile business has led to steady revenue growth, and the new energy three power projects are gradually in mass production. According to the data of the Federation of passengers, 3Q23 domestic passenger car sales ranged from 10.1% to 6.75 million compared with the previous month-on-month ratio of 3.3% to 6.75 million, while 3Q domestic new energy passenger vehicle sales ranged from 14.4% to 2.36 million compared with the previous month-on-month ratio of + 25.7% Universe, driving the auto sector to continue to repair. At present, the bicycle value of the company's supporting new energy vehicles is higher, and the sales volume of new energy passenger cars is more obvious. The company has established cooperative relations with well-known customers such as United Electronics, Great Wall Motor, Bosch, Zaifu and Volkswagen. We believe that with the new energy three power projects put into production, the proportion of new energy business will increase, which is expected to support the sustained and healthy growth of the company's performance.

The fluctuation of raw material price affects profitability, the effect of cost control is obvious, and the cash flow is outstanding. 1-3Q23 gross profit margin year-on-year + 3.90ppt to 33.43%, 3Q23 gross profit margin compared with the month-on-month ratio + 3.75ppt/-1.53ppt to 32.84%, the company's main raw materials include copper, plastic materials, electronic components, etc., in which copper accounts for about 40% of the material cost. 3Q23 copper average price is + 13.0% / + 2.4% to 69,000 yuan / ton, respectively. We believe that the month-on-month decline in gross profit margin is mainly due to the increase in the price of copper and other raw materials. The rate of 3Q23 management expenses is 6.39%, compared with the same month-2.19ppt/-3.43ppt, the company is effective in reducing costs and efficiency, and the lean management is perfect. The net operating cash flow of 3Q23 is the same as the month-on-month comparison of + 233.79% and 63.13% to 118 million yuan, the company's cash flow is outstanding.

Take advantage of the new energy east wind, increase the new energy three power production capacity construction, mass production is expected to open up profit space. According to the announcement, since 2020, the capacity utilization rate of the new energy three power system has increased year by year, and exceeded 80% in 1H23, mainly because the company supplies connectors, filters and other products for United Electronics and Great Wall. We believe that as the production scale effect of the three power projects gradually appears, the capacity utilization rate may continue to rise. In terms of capacity layout, the company announced that it plans to invest 610 million yuan in convertible bonds to raise funds for the production capacity construction of new energy automobile electronic components. We believe that with the gradual mass production of the three power projects of new customers, the production process of the three power system products continues to improve, driven by the improvement of production efficiency, the scale effect is expected to be improved, and there is room for improvement in profitability.

Profit forecast and valuation

Affected by the fluctuation of raw materials, we reduced our net profit in 2023 by 6.6% to 242 million yuan, leaving our profit forecast unchanged in 2024. The current share price corresponds to a price-to-earnings ratio of 30.5 times 2024 / 24.9 times earnings for 2023 Universe. Considering the gradual breakthrough of the company's new products, it maintains an outperforming industry rating and a list price of 19.30 yuan, corresponding to a price-to-earnings ratio of 32.0 times / 26.1 times 2023 Universe 2024, which is 4.8% higher than the current stock price.

Risk

The price of raw materials rose more than expected, and the expansion of new projects fell short of expectations.