Incident: The company released a performance report. In 2023, the company achieved revenue of 905 million yuan, -8.02% year on year; net profit to mother of 72.6102 million yuan, -26.50% year over year; net profit after deducting non-return to mother of 266.267 million yuan, -62.88% year on year.
The performance forecast exceeded expectations, and the Q4 performance inflection point has arrived. Affected by the decline in the component industry's boom, demand in the downstream market was weak, and the company's net interest rate for the full year of 2023 narrowed 2.02 pct year on year to 8.02%. In the fourth quarter, the company relied on the two major product systems, “system” and “high-speed”, and continued to make efforts to segment products with advantages, and achieved year-on-year revisions in revenue and profit. 2023Q4 achieved operating income of 286 million yuan, +3.19% year over year; net profit to mother was 0.3 million yuan, +46.53% year over year.
The boom in AI, new energy vehicles and the military industry is rising, and the multi-point layout is driving the continuous recovery of performance.
1) In the military business field, the company's main defense business customers are enterprises and institutions under China's military industry group. The final revenue mainly comes from the country's defense equipment expenses. According to data from the Ministry of National Defense, in 2023, the national general public budget allocated 1.58 trillion yuan for defense expenditure, an increase of 7.2% over the previous year's execution. Judging from the current scale of expenditure, China's defense expenditure as a share of GDP is lower than that of major countries in the world. Long-term rigid demand for national defense is expected to drive a further increase in the share of expenditure, or increase the company's demand for defense connector products; 2) In the civilian business sector, the booming development of high-end applications such as 5G communication equipment, big data centers, and new energy vehicles will continue to drive the expansion of the connector market. According to the forecast of the China Business Industry Research Institute, China's connector market is expected to reach 205.7 billion yuan in 2023, +6.09% year over year; in 2024, it is expected to reach 218.3 billion yuan, +6.13% year over year. At present, the company has achieved coverage of mainstream domestic and foreign communication equipment manufacturers such as Huawei, ZTE, and Nokia in the field of communications. At the same time, it has become a qualified supplier to customers such as BYD and SAIC-GM-Wuling in the industrial field. It is expected that the future will benefit from increased demand from multiple industries, and its performance is expected to continue to recover.
Communication businesses such as the core supplier of Huawei's AI industry chain and high-speed backplane connectors have entered a period of explosion.
According to Tyco Electronics, the exponential increase in data volume for applications such as cloud computing and AI will directly drive demand for high-speed backplane connectors. From the product side, at present, the company is one of the few domestic enterprises with mass production capacity for 56G high-speed backplane connectors, completed product testing of 112G high-speed backplane connectors, and achieved 224G high-speed backplane connector R&D. It has a clear leading edge in domestic technology and is expected to prioritize the upgrading of industry demand; from the demand side, the company's high-speed backplane connectors currently account for 20-30% of Huawei's share and are one of Huawei's core suppliers. Following the continuous implementation of cutting-edge products such as 112G and 224G high-speed backplane connectors, it is expected that the cooperative relationship between the two parties will be further deepened and the maximum scale of existing cooperative business will be raised. In the long run, in addition to cooperating with Huawei, the company is also actively horizontally expanding customers in new industries such as Fenghuo and Xinhua, which is expected to further broaden the demand space for communications products and form a new growth point for performance.
Profit forecast and investment advice: The downstream connector application industry is developing well, and it is expected to drive the connector boom to recover in the future. The company has obvious technical advantages in the field of segmentation, and it is expected that priority benefits will be given in the future. Combined with the high performance flexibility of the company's direct sales model, the 2024 and 2025 results are expected to rebound ahead of the industry.
In summary, we adjusted the company's 2023-2025 revenue of 11.93/15.29/19.95 billion yuan to 905/16.52/2.341 billion yuan, corresponding to -8.02%/+82.51%/+41.72%; net profit to mother of 1.14/1.75/255 million yuan was adjusted to 0.73/2.12/320 million yuan, corresponding to -26.50%/+191.85%/+51.02%, corresponding EPS was 0.16/0.46/0.69. The corresponding PE is 158/54/36, maintaining the “recommended” rating.
Risk warning: risk of major customer concentration, risk of communication business development falling short of expectations, market competition and technology development risk.