Incident: Huagong Technology released its 2023 annual report. The company23 achieved full-year revenue of 10.208 billion yuan (YoY -15.01%), net profit of 1,007 billion yuan (YoY +11.14%), net profit net profit of 823 million yuan (YoY +14.15%), gross profit margin of 23.11% (YoY +3.95pct), net profit margin 9.86% (YoY +2.32pct), and net operating cash flow of 1,478 billion yuan (YoY +155.16%), which is far higher than the net profit level.
The perception is that the business continues to grow rapidly, and the connectivity business is being dragged down by small websites. By business: 1) Perceived business revenue of 3.248 billion yuan (+40.02% year over year), gross profit margin of 23.99% (+2.75pct year over year).
The NEV PTC thermal management system business continues to grow, covering all domestic NEV and joint venture brands; pressure sensors have basically achieved full coverage of the ceramic pressure range, and 100% of commercial air conditioning brands and 60% coverage of domestic automobile OEMs in terms of customer development. 2) The laser holographic anti-counterfeiting business had revenue of 501 million yuan (-12.63% YoY) and a gross profit margin of 35.01% (YoY -3.77pct). The company used plastic-based bronzing technology and IMR technology to develop plastic-based decoration market application scenarios. The pan-home appliance decoration business fully entered first-line home appliance brands, and cumulative sales doubled year-on-year. 3) The revenue of the intelligent manufacturing business was 3.190 billion yuan (-3.00% year on year), with a gross profit margin of 33.93% (+1.65pct year over year). Among them, orders from auto parts companies for multi-head laser cutting automated production lines increased 15%; the overall revenue of laser processing equipment and automated production lines used in the NEV industry increased 20% year on year. 4) Connected business revenue of 3.110 billion yuan (-45.52% YoY), gross profit margin 9.47% (YoY +0.54 pct). The decline in revenue was mainly affected by the 5G construction cycle, and was caused by a reduction in the scale of network terminal business delivery. The company delivered a full range of 400G and below optical modules on a large scale and entered many leading Internet vendors at home and abroad; 800G products carried out interconnection tests to achieve small-batch delivery.
Strengthen the control of sales and management expenses, and continue to increase investment in R&D. The company's annual sales, management, and R&D expenses rates were 5.41%, 4.04%, and 7.34%, respectively, and +0.35pct, 0.50pct, and 2.63pct, respectively. Against the backdrop of declining revenue, the company strengthened the control of sales and management expenses. The two were -9.06% and -3.12%, respectively, but R&D investment increased by 32.51% year on year, fully reflecting the importance the company attaches to innovative capacity building, talent team introduction, and innovation platform building.
Profit forecast: We expect the company's revenue for 2024-2026 to be 12.121 billion yuan, 13.952 billion yuan and 15.489 billion yuan respectively, net profit to mother of 1,318 billion yuan, 1,608 billion yuan, 1,927 billion yuan, and EPS of 1.31 yuan, 1.60 yuan, and 1.92 billion yuan respectively. Referring to the company's historical valuation and the average valuation level of comparable companies, the company was given a 2024 dynamic PE range of 30-35X, corresponding to a reasonable value range of 39.31-45.87 yuan, which is “superior to the market” rating.
Risk warning: 800G optical module sample delivery results fell short of expectations, and market competition intensified.