Incident: The company released its 2023 annual report. In 2023, the company achieved total operating revenue of 3.45 billion yuan, +17.1% year-on-year, realized net profit of 170 million yuan, +18.5% year-on-year, and realized net profit of 160 million yuan after deduction of non-return to mother, +11.4% year-on-year.

Results have been growing steadily for 23 years, and gross and net margins have remained relatively high. In '23, the company achieved revenue of 3.45 billion yuan, +17.1% year-on-year, and realized net profit of 170 million yuan to mother, +18.5% year-on-year. Among them, 4Q23 achieved revenue of 960 million yuan, +7.9% YoY, +3.3% month-on-month, and realized net profit of 40 million yuan, +1.2% YoY and -12.7%. In terms of profit margin, the company achieved a gross profit margin of 12.4% in '23 and a net profit margin of 4.8%, which is the highest profit margin since 2020. In terms of the cost ratio for the period, the company's sales/management/R&D/finance expenses ratio in '23 was 0.7%/2.0%/2.6%/1.0%, respectively, and the overall cost ratio for the period was 0.6 pct higher than in '22.

The production base is constantly being improved, and the layout of Mexico is expanding overseas markets. In the domestic market, the company's main production bases include Ninghai, Benxi, Shanghai, Chengdu and Huizhou. In '23, Benxi Kabeyi's “NEV Cable Production Line Construction Project” completed the trial production stage; the “Hubei Kabeyi Production Base Project” basically completed construction and entered the trial production stage; the “Ninghai Automobile Cable Expansion Project” and the “Automobile Cable Insulation Material Expansion Project” of Kabeyi New Materials have all entered the plant construction phase. In the international market, in January '24, the company announced the establishment of a production base in Mexico. The total investment amount in overseas markets is expected to be no more than US$43.2 million. In the future, the company will actively promote the construction of a Mexican production base and further deepen supporting production capacity in foreign markets.

End customers are rich in resources, and the new energy business is expected to accelerate. The company firmly grasps the opportunities for the continuous development of the automotive cable market, continuously expands customers, increases sales, and continues to increase the market share of products.

Reflected in terms of revenue, the company's revenue for ordinary cables in '23 was 2.96 billion yuan, +18.3% year-on-year, accounting for 85.3%; revenue for new energy cables was 330 million yuan, +0.7% year-on-year, accounting for 9.6% of revenue. Among them, in the field of new energy vehicles, the company has entered the supply chain of automakers such as BYD, Tesla, Geely, Mercedes-Benz, GM, Honda, Nissan, SAIC, NIO, Ideal, Hex Motors, and Xiaomi, as well as into the NEV supply chain cooperated by Huawei. It is expected that future developments in NEV customer demand will bring greater elasticity to the company's performance.

Maintain a “Highly Recommended” investment rating. The company continues to increase its market share in the domestic market through domestic substitution, and overseas production bases are gradually being built, and the development has a short- and long-term logic. Since the 23-year performance fell short of previous expectations, the previous profit forecast for the next year was lowered. The net profit for 24-26 is estimated to be 2.2/28/360 million yuan, maintaining a “highly recommended” investment rating.

Risk warning: the risk of fluctuations in the automobile industry, the risk of rising raw material prices, excessive supplier concentration, excessive customer concentration, and the risk of absorption of new production capacity.