Incident: On March 15, 2024, the company released its 2023 annual report. In 2023, it achieved revenue of 20.074 billion yuan, an increase of 26.75% over the previous year, and achieved net profit of 3.339 billion yuan, an increase of 22.86% over the previous year.
Key points of investment
Diversified market development increased revenue, and consolidated its position in the electrical connector industry: in 2023, the company achieved operating income of 20.074 billion yuan, +26.75% year over year, operating costs of 12.456 billion yuan, +23.94% year over year, and net profit to mother of 3.339 billion yuan, +22.86% year over year. This is mainly due to the continuous expansion of the defense market, rapid growth in emerging fields such as data centers, petroleum equipment, and photovoltaic energy storage, the increase in customer coverage of mainstream NEV companies, and the acceleration of the international market layout. By product, the company's main electrical connector business achieved revenue of 15.5 billion yuan in '23, +27.17% over the same period, and the gross margin stabilized at more than 40%, reflecting the continued consolidation of the company's position as the preferred supplier of interconnection solutions.
Projects under construction have been completed one after another, and product release has driven performance growth: the company produced 817.2 million connectors in '23, +17.89% over the same period last year, mainly due to production expansion projects. 1) The South China Industrial Base Project (Phase I) was officially put into operation in 2023. The implementation of production capacity will push the company's high-end manufacturing industrialization level to a new level, and the profit margin of iterative products is expected to increase; 2) The basic completion of the Luoyang Infrastructure Industrial Park project in early 2024. With the increase in operating rate and the release of production capacity, the company's performance growth space is expected to gradually open up; 3) Luoyang high-end interconnected technology industry community project construction will be launched to effectively enhance the company's talent cohesion and scientific research capabilities.
Macroeconomic policies combined with “going global” strategies have shown strong results, and the NEV business is expected to progress steadily:
The company's main business is optical, electrical, and fluid connections, and targets strategic emerging industries. Connector products have both high added value attributes of military and civilian integration and high-end specialization, and have a complete marketing network in domestic and foreign markets. Over the past 24 years, against the backdrop of low economic prosperity, the country has introduced a number of forward-looking economic stimulus policies. As the economy recovers in spring, it is expected that the company's revenue capacity will increase significantly, driven by the revitalization of demand in downstream industries such as new energy vehicles, communications, and consumer electronics.
Profit forecast and investment rating: The company's performance is in line with expectations. Based on the boom in the military industry during the 14th Five-Year Plan period, and considering the company's leading position in the military connector market and the rapid development of downstream business, we expect the company's net profit to be 39.97 (-3.20)/50.19 (-2.60)/6.083 billion yuan respectively; corresponding PE is 19/15/12 times, maintaining a “buy” rating.
Risk warning: 1) Technology research and development falls short of expectations; 2) downstream demand and order fluctuations; 3) Company profits fall short of expectations; 4) Macroeconomic policy adjustments exceed expectations.