Incident: The company released its 2023 annual report on March 30, achieving full-year revenue of 6.21 billion yuan, YoY +3.2%; net profit to mother of 750 million yuan, YoY +35.1%; deducted non-net profit of 690 million yuan, YoY +37.2%. The performance was in line with market expectations. Benefiting from steady growth in demand for defense equipment, commercial aerospace, new energy vehicles, etc., the company's main economic indicators reached new highs in 2023. In 2024, the company expects revenue of 6.5 billion yuan, YoY +4.7%.
4Q23 profit increased 37%; 23-year net interest rate hit a record high in '19. 1) Looking at a single quarter: 4Q23 achieved revenue of 1.01 billion yuan, YoY -23.4%; net profit to mother of 160 million yuan, YoY +36.7%; deducted non-net profit of 120 million yuan, YoY +35.4%. From 1Q23 to 4Q23, the company's net profit growth rate for the four quarters remained high year-on-year, at 38.1%, 40.9%, 24.0%, and 36.7%, respectively. 2) Profitability: In 4Q23, the company's gross margin increased 15.9ppt to 52.1% year on year; net margin increased 8.9ppt to 19.4% year on year. Gross margin increased 5.0ppt to 38.0% year on year in 2023; net margin increased 3.2ppt to 14.0% year on year. The company continued to deepen internal governance, and the 2023 net interest rate was the highest level since 2019.
Core product connectors are growing steadily; gross margins of all businesses have increased. 2023, by product:
1) Relays: achieved revenue of 330 million yuan, YoY -9.2%, gross margin increased 4.56ppt to 46.4% year on year; 2) Connectors and interconnect integrated products: achieved revenue of 4.43 billion yuan, YoY +14.3%, gross margin increased 6.06ppt to 38.5% year over year; 3) Motors and control components: achieved revenue of 1.26 billion yuan, YoY -16.2%, gross margin increased 5.81 ppt to 35.3% year on year; 4) Optical communication devices: achieved revenue of 130 million yuan, YoY +8.5% Gross margin increased by 0.66ppt to 23.3% year over year. In terms of production capacity construction: The company initiated planning and construction of an industrial base in South China; Jiangsu Aolei's “production plant with an annual output of 1.53 million new infrastructure optical modules” completed and ready for use; industrialization projects with an annual output of 397.62 million connectors for new infrastructure and other fields are progressing in an orderly manner.
Investment in R&D continues to be increased; cash flow from operating activities has improved markedly. The cost rate increased by 1.5ppt to 22.1% year on year during 2023:1) the sales expense ratio decreased by 0.2ppt to 2.3% year on year; 2) the management cost ratio increased by 0.6ppt to 8.9% year on year; 3) the R&D cost rate increased by 0.9ppt to 11.3% year on year. The company actively laid out new industries and increased investment in key scientific research projects such as high-reliability optoelectronic interconnection, new energy, microwave components, and machine vision technology. By the end of 2023, the company: 1) accounts receivable and notes of $4.68 billion, a decrease of 5.0% from the beginning of the year; 2) inventory of $1.06 billion, up 1.6% from the beginning of the year; 3) contract liabilities of $70 billion, a decrease of 55.9% from the beginning of the year. Net cash flow from operating activities in 2023 was $1.64 billion, compared to $180 million for the same period last year. The company optimizes supply chain material procurement and settlement management, and fund management results have been shown.
Investment proposal: The company is a core supplier of special connectors. While expanding its main business advantages, the company accelerates the layout of strategic emerging industries such as commercial aerospace, data centers, and low-altitude economy, further enhances market competitiveness and economic efficiency, and realizes transformation and upgrading from a single component to integrated interconnection and drive control solutions. We expect the company's net profit from 2024 to 2026 to be 913 million yuan, 1.03 billion yuan, and 1,326 million yuan, respectively. The current stock price corresponds to 2024-2026 PE 19x/16x/13x respectively. Maintaining the “Recommended” rating, taking into account the advantages of the company's traditional business and the accelerated layout in new business areas.
Risk warning: downstream demand falls short of expectations, industrial project construction falls short of expectations, etc.