Incidents: The company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved revenue of 2,335 billion yuan, a year-on-year decrease of 23.34%; net profit of 210 million yuan, a year-on-year decrease of 94.80%; net profit of 0.06 billion yuan was deducted, a year-on-year decrease of 97.20%. On a quarterly basis, Q3 of 2023 achieved revenue of 918 million yuan, a year-on-year decrease of 20.75%, an increase of 27.17% over the previous year; net profit of 26 million yuan, a year-on-year decrease of 66.21%, an increase of 85.90%; and non-net profit of 126 million yuan, a year-on-year decrease of 72.15%, a year-on-year increase of 165.60%.

Q3 performance improved sharply month-on-month, and profitability continued to recover: In Q3 of 2023, the company's revenue and profit both achieved rapid month-on-month growth. The profit side recovered significantly in the first three quarters, and an inflection point in performance may already be apparent. In Q3 of 2023, the company's gross margin was 15.68%, +3.75pcts month-on-month, mainly due to a further recovery in the prosperity of the laptop industry; net profit margin was 2.30%, +1.06pcts month-on-month. In terms of expenses, the company's sales, management, R&D, and financial expenses in the first three quarters of 2023 were 1.40%/5.93%/4.67%/0.78%, respectively, with year-on-year changes of +0.46/+2.45/+0.31/+1.31pcts, respectively. Among them, the cost ratio and absolute value of management expenses and financial expenses all increased year-on-year, respectively, due to an increase in personnel compensation costs, an increase in the initial start-up costs of Vietnamese companies, and an increase in interest on convertible bonds.

The laptop industry is recovering, and AI PCs are expected to drive demand for switches: According to Canalys data, global laptop shipments in Q3 in 2023 fell 6% year on year to 52.1 million units. The decline continued to narrow, and shipments achieved month-on-month growth for two consecutive quarters, indicating that the prosperity of the Q3 laptop industry has further rebounded, and demand is gradually recovering. The company's performance is expected to pick up at the bottom of the laptop industry and enter the fast track of repair.

In terms of hardware, Qunzhi Consulting pointed out that leading PC manufacturers have made relevant layouts for AI PCs: Lenovo has now expanded AI to various high-end product lines, such as consumer Yoga, game book Legion, ThinkBooks for small and medium-sized enterprise users, and commercial ThinkPads; Apple is considering future hybrid development needs and is actively promoting the implementation of 5G chips in the Macbook Pro product line to meet the always-on demand for AI PCs. It is expected to be released in 2025; HP, Acer, etc. The brand has also further increased cooperation with key software service providers and chip suppliers, and will redesign the PC architecture. It is expected that AIGC or other AI applications will be introduced into terminal devices, and related AI notebook solutions will be launched one after another in 2024 and 2025. The AIGC large model requires laptops to have higher computing power and AI acceleration capabilities to support huge computing power resources, which is expected to bring about a new switching upgrade cycle in the PC market. As one of the major suppliers of laptop structural components in the industry, the company is expected to be the first to benefit.

Automotive electronics is progressing smoothly, accumulating momentum: The company's automotive electronics business is progressing smoothly: 1) Client: The company stated on the interactive platform that it has obtained certification from well-known automotive electronics manufacturers such as Desai Siwei, Tianma Micro, Inntron Optoelectronics, Changchun Fusai, etc., and has formed cooperative relationships with many new energy vehicle manufacturers and their suppliers. Recently, the company signed a strategic cooperation agreement with Desai Seaway, further laying the foundation for business expansion and future in-depth cooperation. 2) Technologically, the company has successfully broken through “semi-solid injection molding” technology. Compared with traditional die-casting processes, the direct product yield can be greatly improved. The technology+cost advantages are remarkable. The company has mastered the use of equipment and supporting technology, forming a certain industry barrier. 3) In terms of production capacity, the company's convertible bond issuance project in March 2023 raised a total of 570 million yuan, and plans to invest 400 million yuan for the annual production of 5 million sets of automotive electronic magnesium-aluminum structural components. The construction period of the project is 3 years. Production capacity is gradually released starting in year 2, and full production is reached in year 4. The company has many years of manufacturing experience and technical advantages in magnesium-aluminum structural parts. Through semi-solid injection molding technology, the production process is effectively shortened, and magnesium-aluminum structural parts are mainly used in the production of new energy vehicles and smart cars, and the sales price is high, leading to an increase in the gross margin of automotive magnesium-aluminum structural parts. With the rapid rise in production and market share of new energy vehicles and smart vehicles, the company's profitability is expected to increase significantly.

Lower the profit forecast and maintain the “buy” rating: the company's main business is the R&D, design, production and sales of consumer electronics product structural component modules and related precision molds; the company's main products are structural component modules and related precision molds for notebook computers and other consumer electronics products and related precision molds. In Q1 of 2023, the company moved from laptop structural parts to the field of automotive electronic structural parts. The company mastered the latest technology for magnesium-aluminum structural parts, and was able to obtain orders from new car builders with its technical advantages and scale advantages, and quickly enter the NEV market. We are optimistic that magnesium-aluminum alloy has a unique advantage in automotive electronics and will become the company's new performance growth point in the future. It is estimated that the company's net profit from 2023 to 2025 will be 78 million yuan, 213 million yuan, and 344 million yuan. EPS will be 0.18 yuan, 0.48 yuan, and 0.78 yuan respectively, and corresponding PE will be 61X, 22X, and 14X respectively.

Risk warning: New business development falls short of expectations, downstream demand falls short of expectations, risk of market competition, impact of exchange rate fluctuations.