Event: The company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved revenue of 885 million yuan, an increase of 47.51% over the previous year; net profit of 57 million yuan, a year-on-year decrease of 41.02%; and net profit of 46 million yuan, a year-on-year decrease of 48.49%. On a quarterly basis, Q3 in 2023 achieved revenue of 374 million yuan, up 114.68% year on year, up 22.61% month on month; net profit of 33 million yuan, up 12.34% year on year, up 138.83% month on month; net profit after deducting 31 million yuan, up 26.01% year on year and 192.08% month on month.

Demand recovered, orders recovered, and profitability improved month-on-month: In the first three quarters of 2023, the company's revenue increased significantly year-on-year due to mergers and acquisitions and increased business volume in Q3. In Q3 of 2023, the company's gross margin was 29.57%, +4.47pcts month-on-month; net profit margin was 8.29%, +4.53pcts 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 1.78%/10.87%/6.38%/0.49%, respectively, with year-on-year changes of +0.53/-0.91/+0.27/+4.67pcts, respectively. Among them, the financial expense ratio and absolute value both increased year-on-year, mainly due to a decrease in exchange earnings due to exchange rate fluctuations and an increase in financing costs. The company said that the laptop industry is expected to experience a weak recovery after experiencing inventory removal, and orders for Q3 backlight modules are gradually recovering; it is expected that Q4 orders will increase as the demand side improves. 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. Shipments increased month-on-month for two consecutive quarters, indicating that the prosperity of the Q3 laptop industry has further rebounded and demand is gradually recovering. The company's backlight module business is expected to pick up at the bottom of the laptop industry and enter the fast track of repair.

Asset restructuring was successfully implemented, and multiple businesses developed collaboratively: In H1 2023, the company's backlight product technology path continued to be improved and upgraded. At the same time, with the development of ultra-thin product trends, reduction in automatic equipment transformation costs, and the popularization of micro-nano heat pressing processes, the market penetration rate of backlight modules has further increased. The company report pointed out that with the end of the inventory correction, the supply and demand relationship in the laptop market is expected to return to health. At the same time, the company continues to increase the application and promotion of metal-film switches and ultra-compact waterproof tact switches. The number of orders from major customers was basically the same as the previous year, and the shipment volume of major products increased steadily. Furthermore, in H1 in 2023, the company completed the acquisition of Xinweixing's shares and obtained 100% of Xinweixing's shares. This asset restructuring has a great synergy effect: on the one hand, Xinweixing has obtained supplier certification from major customers such as Honor, Voice, Wentai, and Longqi. After the acquisition is completed, the company can use the supplier certification already obtained by Xinweixing to enter the supply chain system of more well-known 3C manufacturers to enhance the company's ability to meet the diversified product needs of customers, thereby enhancing the company's comprehensive strength in the business sector in the field of electronic equipment manufacturing; on the other hand, the combination of the company and Xinweixing has helped improve the company's bargaining power in the raw material procurement process, thereby reducing procurement costs. Furthermore, Xinweixing can The company is provided with the shrapnel required for precision switch structural parts and component products, further reducing the company's production costs.

Benefiting from the boom in demand for new energy vehicles, investing in CCS projects creates a second growth curve: benefiting from the rapid development of new energy vehicles, the prospects for CCS are promising. According to the company's 2023 interim report, according to data jointly released by EVTank and Ivy Institute of Economics, global NEV sales volume reached 10.824 million units in 2022, up 61.6% year on year; according to EvTank's forecast, global NEV sales volume is expected to reach 25.422 million units in 2025, and sales volume in the global NEV market will reach 52.120 million units in 2030, while China will be the world's largest NEV market. Meanwhile, the company report pointed out that according to data from the China Automobile Association, China's NEV sales volume increased from 1.256 million units in 2018 to 6.887 million units in 2022. The compound annual growth rate reached 53.02%, and NEV sales continued to grow rapidly. In order to cope with the rapid increase in demand for power batteries in the NEV market, major global power battery companies have clearly stated their intention to expand production. For example, Ningde Era, China Innovation Airlines, and Honeycomb Energy have formulated corresponding expansion plans. According to the company report, major power battery companies such as Ningde Times, BYD, China Innovation Aviation, Guoxuan Hi-Tech, Honeycomb Energy, Everweft Lithium Energy, Funeng Technology, and Xinwoda have planned a total production capacity of more than 3 TWh in 2025. Overall production capacity has expanded more than 20 times, which is expected to create a large market space for CCS and FPC modules. As a key component of new energy vehicles, power batteries are also an important emerging carrying method for their BMS, and the future market space is quite impressive. In order to seize the rapidly developing market opportunities of the new energy vehicle industry and the energy storage industry, help the company shift from the consumer electronics field to the field of CCS and FPC modules for new energy power batteries and energy storage battery systems, and enhance the company's overall industrial support capabilities, in H1 in 2023, the company invested 565 million yuan in CCS and FPC module construction projects for power batteries and energy storage battery systems, with a design capacity of 12 million sets of CCS modules and 39 million FPC modules per year. At present, the company's CCS products have received orders from customers in the energy storage sector, and production and delivery are progressing smoothly; projects in the field of new energy are being verified.

Maintaining the “accumulation” rating: the company is mainly engaged in the R&D, production and sales of backlight modules, metal film switches, and ultra-small waterproof tact switches; in H1 in 2023, the company completed the equity acquisition of Xinweixing and officially entered the connector and precision hardware business. In recent years, with the rapid growth of the NEV market, the demand for CCS and FPC modules for power batteries and energy storage battery systems is promising. In the future, with the elimination of consumer electronics inventories, the profitability of the company's traditional business is expected to gradually recover; furthermore, with the gradual release of production capacity for CCS and FPC modules for power batteries and energy storage battery systems, the company is expected to cultivate new performance growth points and further improve profit levels. The company's net profit for 2023-2025 is estimated to be 96 million yuan, 184 million yuan and 362 million yuan respectively, EPS is 0.56, 1.06 yuan, and 2.09 yuan respectively, and corresponding PE is 55X, 29X, and 15X respectively.

Risk warning: market risk, exchange rate risk, market competition risk, technological innovation risk.