Incident: On April 16, 2024, Shaanxi Huada released its 2023 annual report. In 2023, the company achieved operating income of 851 million yuan, an increase of 6.14% over the previous year, and realized net profit of 79 million yuan, an increase of 22% over the previous year. The basic earnings per share was 0.92 yuan, an increase of 15.58% over the previous year.
Revenue from anchored electrical connectors and interconnect products and RF coaxial cable components increased by more than 70%. Shaanxi Huada's main business is R&D, production and sales of electrical connectors and interconnect products. The company was formerly the state-owned 853rd factory. After more than 50 years of scientific research and production practices, it has formed three types of products: RF coaxial connectors, low frequency connectors, and RF coaxial cable components. The products are widely used in aerospace, weapons, communications and other fields. In 2023, the company achieved revenue of 851 million yuan, an increase of 6.14% over the previous year. The main reason for revenue growth was increased market development efforts in 2023, the product business structure was continuously optimized, and overall competitiveness continued to improve. Among them, the RF coaxial connector business achieved revenue of 354 million yuan, a year-on-year decrease of 10.28%; the RF coaxial cable component business achieved revenue of 294 million yuan, an increase of 70.96%; and the low-frequency connector business achieved revenue of 138 million yuan, a year-on-year decrease of 11.81%. Thanks to the significant growth in RF coaxial cable components, the company's total revenue has been growing continuously for many years, and the characteristics of growth and sustainability have been highlighted.
High-reliability connectors support commercial space+satellites, and continue to benefit from the construction of domestic satellite internet constellations. As an important domestic electrical connector development and production unit, according to the “14th Five-Year Plan” development plan, the company closely follows major national projects, combines the country's plans in the aerospace field and commercial satellites, increases investment in the development and process support capabilities of low-cost, high-reliability connectors and interconnect products, and provides corresponding interconnection solutions, especially in the fields of miniaturization, reduction and array antennas in commercial aerospace. China Aerospace will complete 67 launch missions and develop and launch 221 spacecraft throughout the year in 2023. It is expected to carry out about 100 launch missions in 2024. China's first commercial space launch site will usher in its first launch mission, and multiple satellite constellations will accelerate network construction. With the rapid development of China's aerospace industry, the strategic value of satellite internet in 6G communication, navigation and positioning is prominent, and China's communications satellite deployment is also clearly accelerating. In particular, commercial satellites will usher in a heyday of rapid development, and the downstream popularity of the company's highly reliable connector products is expected to increase.
Qualified suppliers from equipment vendors such as Huawei and ZTE, domestic substitutation+military recovery unleashed spatial flexibility. According to the latest data from the Ministry of Industry and Information Technology, by the end of 2023, the total number of 5G base stations in China reached 3.377 million. With the further popularization of commercial use of 5G communications and the advancement of 5G-A communication construction, the field of communication applications continues to expand. The industrial-grade electrical connectors and interconnect products produced by the company are widely used in communication systems. They are qualified suppliers of electrical connectors and interconnect products for major telecommunications companies such as Huawei and ZTE. The products are widely used in 5G and next-generation communication fields. At the same time, in the field of weapons and equipment, benefiting from military modernization, the requirements for localization of electronic components are increasing. The military grade electrical connectors and interconnect products produced by the company are used in various types of weapons and equipment, including various electronic equipment systems such as missiles, drones, early-warning aircraft, ships, etc., especially in various phased array radar systems. As domestic substitution accelerates and military demand rebounds, the company's supporting products are expected to continue to benefit.
Investment advice: As a core national connector enterprise, Shaanxi Huada's products are widely used in aerospace projects in the field of national strategic development and key types of weapons and equipment projects in the field of national defense and military, with obvious core advantages. Considering the impact of changes in the business development of some of the company's products, we adjusted the profit forecast. The company's revenue for 2024-2026 is expected to be 981/11.57/1,369 million yuan (2024-2025 forecast value is 1,051/1,257 billion yuan), up 15.2%/18.0%/18.3% year on year, and net profit to mother is 1.04/1.39/179 million yuan, respectively (previous value of 2024-2025 forecast was 1.09/146 billion yuan), up 32.5%/33.1%/ 28.5%, corresponding EPS is 0.97/1.29/1.65 yuan, PE is 48.0/36.1/28.1, maintaining the “increase holding-B” recommendation.
Risk warning: Satellite internet development falls short of expectations, military business rebound falls short of expectations, technology research and development falls short of expectations, etc.