Incidents:
The company announced its 2023 results report. According to the company's announcement, in 2023, the company achieved operating income of 20.074 billion yuan (yoy +26.75%), realized net profit of 3.339 billion yuan (yoy +22.90%), and realized net profit deducted from non-mother of 3.245 billion yuan (yoy +23.73%). Q4 2023 achieved revenue of 4.715 billion yuan (yoy +39.34%) and net profit to mother of 446 million yuan (yoy +2.92%). The company's performance is in line with market expectations.
Comment:
Demand blossomed and orders were delivered in an orderly manner, and the revenue of the company's three major businesses maintained steady growth. According to the company's announcement, the company achieved operating revenue of 20.074 billion yuan (yoy +26.75%) and realized net profit of 3.339 billion yuan (yoy +22.90%) in 2023. Among them, the business related to electrical connectors and integrated interconnect components, optical connectors, and liquid cooling solutions and related products increased 27.17%, 27.26% and 21.35%, respectively, year-on-year, and maintained rapid growth in revenue and profit. We believe that the main reasons include: 1) the defense sector has maintained a high boom, new breakthroughs have been achieved in market expansion, and the preferred position of interconnection solution suppliers continues to be consolidated, driving continuous revenue growth; 2) the civil sector has achieved rapid growth in data centers, petroleum equipment, photovoltaic energy storage, etc.; 3) the international layout of new energy vehicles continues to accelerate, the business focuses on “world-class, domestic mainstream” customers, and the coverage rate of mainstream car companies continues to increase. Revenue is expected to maintain rapid growth in 2024 with the steady release of downstream demand.
Net interest rates declined slightly due to equity incentive amortization and R&D expenses, and overall profitability was stable. According to the company announcement, 1) The company's gross margin for 2023 was 37.95%, up 1.41 pcts from the same period last year. Electrical connectors and integrated interconnect components, optical connector-related business and liquid cooling solutions and related products increased by 0.86/3.71/1.91pcts to 40.92%/26.44%/31.12% over the same period last year; 2) The company's net profit margin in 2023 was 17.61%, down 0.70 pcts from the same period last year.
Among them, the period cost ratio increased by 2.41 pcts to 19.49% compared to 2022. Among them, the increase in stock incentive amortization led to an increase of 0.90 pcts to 6.64% compared to 2022; the R&D expense ratio increased 0.86 pcts to 10.95% compared to 2022. As the company's management capabilities continue to improve, profitability is expected to continue to increase.
The industry continues to thrive and is expected to grow steadily in 2024. 1) According to the company's announcement, the company expects to achieve revenue of 22.1 billion yuan in 2024, an increase of 10.09% over the previous year; the total profit is expected to be 4.110 billion yuan, an increase of 10.08% over the previous year. 2) By the end of 2023, the company's inventory was 4.190 billion yuan, a decrease of 1,226 billion yuan from the beginning of the year, and contract liabilities were 445 million yuan, a decrease of 449 million yuan from the beginning of the year. As inventory and contract liabilities are gradually converted into revenue, the company's future performance is expected to continue to grow. 3) A number of industrial bases have been completed and put into operation or construction has started one after another, and production capacity has been gradually released, providing strong support for the company's performance growth.
The industry is full of snow, and the company is expected to become a world-class connector enterprise. 1) Higher reliability premium+less fluctuation in the industry profit cycle + stable industry pattern or the main reason why the connector circuit has the ability to create long-term value; 2) The company adheres to the development idea of value extension+high-end expansion, continuously enriching product types and service methods, so that the company has a strong ability to resist industry cycle risks; 3) Demand for military connectors is expected to continue to rise during the 14th Five-Year Plan period, and the company's market share is expected to continue to increase; 4) The automotive connector business benefits from industry pattern disruption, and the company is expected to become a global automotive connector giant.
The 2024-2025E profit forecast was lowered and the “Buy” rating was maintained. Considering the impact of equity incentive amortization expenses, we lowered the company's 2024-2025E net profit forecast to RMB 41.43/5,024 billion (previous value was RMB 46.81/5.943 billion yuan) and added the 2026E net profit forecast to RMB 6.273 billion. The current stock price corresponds to PE of 19/16/12 times, respectively. Considering that the company is a core connector enterprise in the domestic defense and high-end manufacturing fields, it is worth looking forward to continued high-quality growth in future performance, so it maintains a “buy” rating.
Risk warning: risk of market demand fluctuations; risk of procurement supply chain instability; increased risk of industry competition