3Q23 performance declined slightly year-on-year

In the first three quarters of 2023, the company achieved operating income of 2.95 billion yuan, a year-on-year decrease of 5%, and net profit of 87 million yuan, an increase of 7% over the previous year. Among them, 3Q23 achieved revenue of 1.07 billion yuan in a single quarter, a decrease of 14% over the previous year, and net profit of 46.77 million yuan, a decrease of 8% over the previous year.

Gross profit for the single quarter increased rapidly year on year, but net profit declined in the 3Q quarter due to increased financial expenses, gross profit for the third quarter was 205 million yuan, up 45% year on year. The main reason was that gross margin increased by about 8 percentage points, while the company's financial expenses increased by 44.15 million yuan year on year. The large increase led to a slight decline in net profit for the single quarter.

Huawei automotive wiring harness supplier, power engineering relies on national strategy

By business: 1) The company's optical bar factory completed process debugging and mass production; the optical fiber factory maintained maximum scale production. 2) The company's automotive wiring business is growing steadily, with a total of 13 new projects from SAIC, Huawei, Cummins, SAIC Volkswagen, Faurecia, BYD, XCMG and other customers. 3) Power engineering business. On the basis of a careful and secure strategy, the company moderately bids for reserve projects to stabilize and dig deeper into the existing market. Relying on the country's strategic call to build the “Belt and Road” and the “China-Bangladesh-Myanmar-India Economic Corridor”, the company seized the opportunity to expand general contracting business for power transmission, transformation, and power plants. Among them, the Bangladesh national grid renovation project with a contract value of about 1.14 billion US dollars is progressing smoothly.

Optical chips and superconducting strips are progressing steadily

1) The laser chip has completed the infrastructure and equipment debugging, and various chips have entered the batch trial production stage; the coated filter chip successfully tested the 50G PON device, and released the 50GHz DWDM TFF, which is used in thin film filters for dense wavelength division multiplexing. 2) The main products of superconductivity are second-generation high-temperature superconducting strips and their application equipment and superconducting electrical products. They can be widely used in wind power, nuclear fusion, power grids, transportation, medical, military, major scientific engineering and other fields. The company has further promoted its application in superconducting induction heating and controllable nuclear fusion reactors with its unique magnetic flux bonding technology in the industry. The “High Temperature Superconducting DC Cable Demonstration Project” project implemented by the company in cooperation with Jiangsu State Grid will be put into operation on the network in the second half of 2023. The project is the first superconducting cable in Jiangsu Province, and is currently the first cold-insulated high-temperature superconducting DC cable in China based on second-generation domestic high-temperature superconducting materials.

Profit forecasting and investment advice

Due to the low growth rate of the company's net profit in the first three quarters, we lowered the company's profit forecast. The estimated net profit for 2023-2025 is 108 million yuan, 129 million yuan, and 155 million yuan (before adjustments were 295 million yuan, 354 million yuan, 419 million yuan), corresponding to price-earnings ratios of 65 times and 54 times, respectively, maintaining the “increase in holdings” rating.

Risk warning: operators' demand for optical cables falls short of expectations, delivery of automobile wiring harnesses falls short of expectations, overseas engineering progress falls short of expectations, market competition exceeds expectations, technology research and development risks, and exchange rate risks.