Incident Overview

On the evening of October 27, the company released its report for the third quarter of 2023. In the first three quarters, the company achieved revenue of 2,335 billion yuan, -23.34% year-on-year, and net profit of 210 million yuan, -94.80% of the same period last year.

Analysis and judgment

The company's Q3 performance improved month-on-month, and profitability is expected to rise steadily. The company's 23Q3 revenue was 918 million yuan, -20.75% year-on-year, +27.17%; net profit was 0.26 million yuan, -66.21%, +85.90% month-on-month; gross profit margin was 15.68%, Q2+3.75pct month-on-month.

The PC demand recovery window may be approaching, and the company, as an industry leader, is expected to be the first to benefit. According to IDC data, 23Q3 global PC shipments were 68 million units, -7.6% year-on-year and +11% month-on-month. PC shipments have increased in the past two quarters, and the year-on-year decline has slowed. Furthermore, we believe that with the successful incubation of new AI PC products by major manufacturers in the future, it is expected to drive a new wave of switching machines. According to counterpoint data, from 2020, AI PCs will grow at a CAGR of 50% and dominate the PC market after 2026, with a penetration rate expected to exceed 50%. Relying on the resource advantages of core major customers such as Lenovo, Samsung Electronics, HP, Dell, and LG, the company is expected to seize more market share in the future. According to data from JimiNet, the global market share of its notebook structural components in 2020 is about 10%, and the market share is expected to increase to more than 20% in the next 3-5 years.

The “one, two wings” strategic layout opens up new growth space. The automotive electronics business has already entered the mass production stage. Furthermore, the company has vigorously promoted the communication electronics business through the acquisition of Dongguan Yingmai. The company raised 570 million yuan through the issuance of convertible bonds to produce 5 million sets of magnesium-aluminum structural components for automotive electronics. It uses new “semi-solid injection molding” technology to effectively shorten the process and improve production efficiency, and the gross margin of the product is expected to increase steadily. On the application side, the company's products are currently mainly central control screen components. The subsidiary Hefei Precision is already involved in developing business applied to in-vehicle computers. Among them, products for air cooling systems have already begun to be supplied, and products for water cooling systems have already entered the mold opening stage. For clients, the products have been certified by well-known automotive electronics manufacturers such as Desai Siwei, Tianma Micro, Inntron Optoelectronics, and Changchun Fusai.

Investment advice

Maintain a “buy” rating. We expect the company's net profit for 23-25 to be 0.64/2.08/339 million yuan, or -59.4%/+225.1%/+63.4% year-on-year, corresponding to EPS of 0.15/0.47/0.77 yuan, and a PE valuation of 73/22/14 times in 23-25.

Risk warning

Capacity development falls short of expectations, industry competition intensifies, and development of emerging businesses falls short of expectations