Incident: The company announced its 2023 annual report, achieving revenue of 20.072 billion yuan (YOY +26.75%), net profit attributable to mother of 3.339 billion yuan (YOY +22.86%), and net profit not attributable to mother of 3.245 billion yuan (YOY +23.73%). The gross profit margin was 37.95%, up 1.41 pct from the same period last year, the net profit margin was 17.61%, and a decrease of 0.71 pct from the same period last year.
Comment: Performance stability is strong, improving quality and efficiency drives continuous release of profit flexibility, gross margin has increased further, and the decline in net interest rate is mainly affected by amortization of equity incentive expenses. During the reporting period, the company's preferred position as a supplier of interconnection solutions in the defense sector continued to be consolidated; new results were achieved in the quality and efficiency of communications and industrial business operations, and rapid growth was achieved in data centers, petroleum equipment, photovoltaic energy storage, etc.; the coverage rate of mainstream vehicle companies in the NEV business continued to increase; and the international layout continued to accelerate. By business, electric/optical connector/liquid cooling revenue increased 27.17%/27.26%/21.35%, respectively. On the cost side, the cost rate for the period was 19.49%, an increase of 2.41 pct over the same period last year. Management expenses increased 46.52% year over year, mainly due to the increase in equity incentives and amortization amounts. At the same time, R&D expenses increased 37.55% year over year. R&D investment mainly included platform-based high-current connectors and components for new energy vehicle power systems, liquid cooled cold plate components for data centers, etc. On the asset side, accounts receivable increased by 69.25% compared to the end of last year, mainly due to rapid growth in operating income; a 22.64% decrease in inventory; and a 50.16% decrease in contract liabilities. On the cash flow side, net cash flow from operating activities was 3,088 billion yuan, an increase of 45.79% over the previous year. Mainly due to innovative accounts receivable management models, cash received from sales of goods and provision of services increased by 2,159 billion yuan over the same period last year. The progress of the South China Industrial Base project is 76.73%, and the investment progress of the basic device industrial park project (Phase I) is 99.33%. The planned dates for the two projects to reach the intended use status are December 31 and March 31, 2024, respectively.
Profit forecast and investment advice: EPS is expected to be 1.92/2.41/2.95 yuan/share in 24-26. I am optimistic that the company's connector circuit will continue to grow, demand resonates in the defense sector's informatization construction, collaborative communication industry and new energy sector needs will resonate, liquid cooling solutions will continue to expand, maintain a reasonable value of 55.87 yuan/share, and maintain an “gain” rating.
Risk warning: Market expansion falls short of expectations, equipment demand and delivery expectations are low, policy adjustments, etc.