Key points of investment:
Weifeng Electronics' “one, two wings” product structure is stable, technology and manufacturing capacity are leading in the industry. The company invigorates the field of high-end precision connectors and focuses on becoming a connector manufacturer with world-class precision manufacturing standards. We believe that on the basis that the basic industrial control market remains stable, we should pay close attention to the company's incremental opportunities in new fields, especially in the direction of new energy vehicles and robots.
Against the backdrop of strong macro-level uncertainty, gross margin is stable at a high level, and profitability is relatively stable, reflecting the stability of the basic industrial control market. The company's connector products are mainly used in the three downstream areas of industrial control/automobile/new energy. Orders and deliveries in some application areas were affected in the context of fluctuations in the macroeconomic environment. In 2023H1, the company's three downstream industrial control/automobile/new energy revenue accounted for about 65%/17%/16%. The company's 2021/2022/2023Q1-Q3 gross margin was 45.7%/43.7%/42.1%, respectively. The gross profit margin of 2023Q1-Q3 in a single quarter was 41.9%/42.6%/41.9%, respectively, maintaining a high level of over 40%, reflecting the company's focus on high-end precision connectors, so it has high barriers and risk resistance.
The product and customer layout in the field of new energy vehicles and robots is gradually being enriched, and it is expected that the initial investment will gradually be realized in terms of performance. According to the company's investor interactive platform Q&A (same below), the company already has automotive connectors such as low-voltage signal transmission connectors, front-end sensing (radar, high-speed camera) connectors, and high-frequency high-speed connectors for intelligent driving in the three-power system required for new energy vehicles. The main customers include new energy vehicle manufacturers such as BYD, Tire1 customers such as Ikon Power, and some engineering vehicle customers. It is expected that as automotive connectors continue to be localized, this field will become an important direction for the company and maintain high growth. In the field of robotics, the company's robot-related product series have been mass-produced and shipped, and downstream customers are expanding their business smoothly. The company's products can be applied to automated and intelligent manufacturing equipment such as humanoid robots and industrial robots. Specifically, they are mainly used in robotic arms and control cabinets. The main product lines involved include I/O series, WD series, WF series, etc. The outstanding features of this type of product are high stability, high consistency, long life cycle, and unfriendly application environment. Currently, related fields are mainly dominated by high-end industrial connectors from international first-tier brands.
Maintain profit forecasts and maintain “buy” ratings. Maintaining the profit forecast, the company's net profit for 23-25 is estimated to be 1.56/1.97/227 million, and the current stock price corresponding to PE is 36/29/25 times. The valuation is at a historically low level, and new fields such as new energy vehicles/robots are expected to improve the company's performance elasticity and valuation level and maintain the “buy” rating.
Risk warning: the risk of fluctuations in the international macroeconomic and political situation, the risk of increased competition in the industry, and the risk of fluctuations in raw material prices.