Key points of investment:
China Aviation Optoelectronics announced its 2023 annual report. Operating revenue for the full year of 2023 was 20.074 billion yuan, up 26.75% year on year, and net profit attributable to shareholders of listed companies was 3.339 billion yuan, up 22.86% year on year, reaching a new high.
Annual reports have grown steadily, and military and civilian business have gone hand in hand
In 2023, we achieved operating income of 20.074 billion yuan, a year-on-year increase of 26.75%, net profit to mother of 3.339 billion yuan, an increase of 22.86% year-on-year, and net profit after deducting non-return to mother of 3.245 billion yuan, an increase of 23.73% over the previous year.
On a quarterly basis, Q1-Q4's revenue in 2023 was 5.342 billion, 5.416 billion, 4.601 billion, and 4.715 billion, respectively, up 34.68%, 28.19%, 7.94%, and 39.34% year-on-year; 2023 Q1-Q4 net profit to mother was 993 million, 960 million, 940 million, and 446 million, respectively, up 34.71%, 24.34%, 21.25%, and 2.92% year-on-year respectively.
View the 2023 annual report by business revenue:
1) Operating revenue of electrical connectors and integrated components was 15.5 billion yuan, up 27.17% year on year, accounting for 77.21% of revenue;
2) The operating revenue of optical connectors and devices was $3.147 billion, up 27.26% year on year, accounting for 15.68% of revenue;
3) The operating revenue of liquid cooling solutions and other products was 1,427 billion, up 21,35% year-on-year, accounting for 7.11% of revenue.
The company's gross margin has been rising steadily, equity incentives and R&D investment have increased, net interest rates fluctuated slightly, and the company's operations are steady, and various profit indicators are relatively stable.
In the 2023 annual report, the company's gross profit margin and net interest rate were 37.95% and 17.61%, respectively, +1.4pct and -0.71pct, respectively. The main reason for the increase in gross margin but the decline in net interest rate was 1) the company's equity incentive amortization increased by 165.14% to 301 million yuan, leading to an increase of 0.9 pct in management expenses; 2) The company increased R&D investment, and the total R&D expenses in 2023 was 2.197 billion yuan, an increase of 37.55% over the previous year; 3) 2023 Exchange earnings fell sharply, from $157 million in the same period last year to $0.1 billion, leading to an increase of 0.65 pct in financial expenses.
The company's sales, management, R&D and financial expenses rates for the 2023 annual report were 2.66%, 6.64%, 10.95%, and -0.75%, respectively, +0.01pct, +0.9pct, +0.84pct, and +0.65pct, respectively. The company's four expenses rate was 19.5%, +2.42pct year-on-year.
Most of the company's equity incentive expenses and R&D expenses were settled in 2023Q4. The 2023Q4 company's management expenses were 479 million, up 83% month-on-month, 75.23% year-on-year, and R&D expenses were 889 million, up 136.35% month-on-month and 74.16% year-on-year. As a result, revenue for the 2023Q4 single quarter increased 39.34% year on year, and net profit to mother only increased by 2.92% year on year.
By business, the gross margins of the company's electrical connectors, optical connectors, and fluid dental connector businesses were 40.92%, 26.44%, and 31.12%, respectively, +0.86pct, +3.71pct, and +1.91pct, respectively.
Production capacity construction continues to be recommended, military and civilian business continues to expand, and the company continues to grow and accelerate the capacity building of modern industries. The Basic Devices Industrial Park (Phase I) project was successfully completed and is expected to be put into use at the end of the first quarter of 2024; the South China Industrial Base (Phase I) was opened, and the second phase is expected to be put into use by the end of 2024; the high-end interconnect technology industry community, civil aircraft and industrial interconnection industrial park has been fully started; the Shenyang Xinghua Aero Engine Wiring Harness and Small Fan Production Capacity Enhancement Construction Project and Taixing Aviation Optoelectronic Liquid Cooling Source Series Product Integrated System Project has successfully capped.
With several major fund-raising projects being put into operation, the company's production capacity has greatly expanded, and performance growth has continued to be strong.
In 2023, the company produced 817 million connectors, up 17.89% year on year, and sold 795 million connectors, up 21.03% year on year. The increase in the company's connector production capacity mainly benefits from the continuous expansion of production capacity.
The 2024 defense spending budget grew at a rate of 7.2% and continued to grow at a high level. The steady increase in military demand has led to rapid growth in connectors. The company is a core supplier of military connectors and continues to benefit from growing demand for military products.
The company's civilian business focuses on strategic emerging industries, and new results have been achieved in the quality and efficiency of communication and industrial business operations, and rapid growth has been achieved in data centers, petroleum equipment, photovoltaic energy storage, etc.; the NEV business focuses on “world-class, domestic mainstream” customers, and the coverage rate of mainstream car companies continues to increase, and multiple projects have been targeted throughout the year.
Demand in the company's main downstream military, communications, new energy vehicles, data centers, photovoltaic energy storage and other industries is growing steadily, and it is expected that the growth of the company's military and civilian business will continue to grow steadily in the medium to long term.
Profit forecasting and valuation
We predict that the company's revenue for 2024 to 2026 will be 24.85 billion, 30.212 billion, and 35.134 billion, respectively, and net profit to mother will be 4.194 billion, 5,069 billion yuan, and 5.951 billion, respectively. The corresponding PE will be 17.18X, 14.22X, and 12.11X, respectively. The company's valuation level is low, matching the performance growth rate in the next few years, and will continue to maintain a “buy” rating.
Risk warning: 1: military demand and delivery progress fall short of expectations; 2: Defense expenditure budget growth rate falls short of expectations; 3: raw material prices rise and gross margin fluctuate; 4: Industry competition intensifies.