Key points of investment
Event: The company released its three-quarter report. The first three quarters achieved revenue of 491 million yuan (-25.39% year-on-year), net profit of 53 million yuan (-61.13% year-on-year), net profit of 153 million yuan (-61.13% year-on-year), revenue of 159 million yuan (-32.56% yoy), and net profit of 0.08 billion yuan (-83.63% yoy) in the third quarter.
Comment: Communications dragged down revenue and gross profit margins in the first three quarters, and increased investment in automobiles led to an increase in cost rates. In the first three quarters, demand for communication connectors and their components was insufficient, and the decline in orders led to a decline in revenue. In terms of gross margin, due to falling orders, etc., the company's production capacity utilization rate may be insufficient, compounded by Malaysian factory construction, etc., and the gross margin for the third quarter continued to be under pressure, but it has improved month-on-month. The gross margin for the third quarter was -8.75pct year-on-year and +2.19pct month-on-month to 25.15%. In terms of cost rates, due to market development in the automobile business, an increase in sales institutions and sales personnel, and an increase in research and development in the communications and automobile business, sales expenses and R&D expenses both increased month-on-month.
In the long run, in terms of communications, it is deeply tied to North American 800G connector giants, customized properties enjoy strong bargaining prices, and Malaysia's production capacity serves global telecommunications customers. The company's high-speed I/O connector composed of a new 112G housing and precision structural components, and the use of 800G optical modules in combination with 800G optical modules will directly benefit from the explosion in demand for AI-driven 800G optical modules. In June 2023, the company announced that the CAGE QSFP 112G series of communication connector housing products had been tested in small batches. Meanwhile, the Malaysian subsidiary is going through the relevant formalities. Relevant personnel and supporting machinery and equipment have already settled in, and are gradually starting mold parts processing business, which will serve global communication customers in the future.
On the automotive side, the development of automotive connector customers and products has been smooth, profoundly benefiting from the wave of intelligent connectivity. With the electrification of automobiles and intelligent connectivity, demand in the high-voltage and high-speed connector industry continues to grow rapidly, and localized substitution is accelerating. With years of experience in precision manufacturing and technical advantages, the company successfully transformed into a Tire1 brand. The company's customers are accelerating breakthroughs. In addition to the original electronic control and motor module products, battery structural parts and component products such as the battery management module water cooling plate project were added in 2023, as well as the horizontal development of Moss' BMS business modules and obtained the BMS Gen6 project. Currently, they are in the small-batch trial production stage.
Profit forecast and investment advice: We have adjusted our profit forecast. It is estimated that in 2023-2025, the company's net profit will be 0.84, 2.98, and 376 million yuan, corresponding to the closing price of November 2, PE 50.5, 14.3, and 11.3 times, maintaining the “increase in holdings” rating.
Risk warning: raw material prices have risen sharply, customer development has fallen short of expectations, and 112G products have fallen short of expectations.