Deeply involved in game console components, the business matrix continues to expand. Zhishang Technology was founded in 2009, initially for Foxconn to manufacture precision metal structural parts such as mobile phones and tablets; it began laying out the game console parts business in 2017 and developed various precision component products such as slides, Tact Switches, card slots, and precision positioning controllers, etc., and has now grown into a core supplier for Company N and Sony; since then, it has entered the field of optical fiber connectors and automation equipment through endogenous epitaxial, and successfully entered the GEM market in July 2023.

Embrace Company N & Sony to grow together and join hands with Meta to open a new VR/AR track. In terms of game console parts business, the company has been supplying slide rail products to Company N in batches through Foxconn since 2018, and has gradually introduced game console connectors, Tact Switches, card slots, etc., which are eventually applied to game console terminals such as Switch and PS series. According to Company N's guidelines, short-term Switch sales are under pressure, but next-generation products are already in the R&D stage. The company's performance is expected to accelerate growth with the release of new products, and as a scarce parts supplier for Company N in China, it is still worth looking forward to future market share increases; in terms of VR/AR, the company supplies accurate positioning controllers and game console connectors for Oculus Quest series products to Meta through Foxconn and Goerle shares. We have seen that the above business has contributed nearly 70% of the company's revenue. We are optimistic that the company closely focuses on major customers and continues to promote the horizontal and vertical expansion of the product matrix.

Optical fiber connectors have become a new growth point, and automation equipment has followed the expansion of the industry. The company's connector business includes electronic connectors and optical fiber connectors. Among them, electronic connectors are mainly used in the audio and automotive fields, covering well-known audio manufacturers such as Beilingda and automotive industry customers such as Qinglian Tongchuang; the company's optical fiber connector products include single-core and multi-core MPO optical fiber jumpers, etc., mainly used in optical fiber transmission, data centers, etc., and customers include companies such as SENKO and Tefa Information. In July 2020, the company took a stake in Fukahima to further enhance the synergy of optical communication services and help MPO business development. In addition, the company began providing Foxconn with automated equipment in 2022, mainly including automated visual inspection and automated assembly line products. It is expected to benefit from the rapid development of the machine vision industry in the future.

Profit forecast and investment recommendations: We expect the company to achieve operating income of 5.95/7.42/957 billion yuan in 2023/2024/2025, an increase of 3.3%/24.8%/29.0%, and net profit of 0.92/1.32/180 billion yuan, a year-on-year increase of -21.7%/43.8%/36.5%. The current stock price corresponding to 2023/2024/2025 PE is 66/46/33X respectively. The company's current valuation is within a reasonable range, considering the company's domestic games The scarcity of the machine parts industry has great prospects for future growth. First coverage, giving a “Highly Recommended” rating.

Risk warning: downstream demand falls short of expectations; business development falls short of expectations; industry competition intensifies.