Description of the event
The company announced its 2023 annual report and 2014 quarterly report. For the full year of 2023, the company achieved operating income of 3.129 billion yuan, +5.37% year over year, and net profit to mother of 356 million yuan, -19.64% year over year. In the first quarter of 2024, we achieved operating income of 1,040 million yuan, +68.77% year-on-year, and net profit to mother of 162 million yuan, +244.43% year-on-year.
Incident reviews
The revenue-side automotive electronics business surged, and consumer electronics continued to recover. The company achieved revenue of 3.129 billion yuan in 2023, +5.37% year over year. By product split, automotive connectors/connectors/electromagnetic compatibility parts/soft boards/other business revenue was 8.23/7.99/7.96/3.11/400 million yuan respectively, with year-on-year growth rates of +60.06%/-8.48%/-1.04%/-23.72%/+7.96%, respectively. The company's revenue was affected by the consumer electronics industry. There was a marked decline in the first half of '23, demand recovered in the second half of the year, and revenue remained stable throughout the year. The automotive connector business has achieved rapid growth. By expanding customers and entering leading domestic vehicle supply chains and leading overseas Tier 1 companies, the production capacity of the core product automotive high-speed high-frequency connectors and components continues to expand. The market share of the consumer electronics RF connector business was stable. As the smartphone market showed an overall trend of low and high trends in 23 years, the company's corresponding consumer electronics revenue also gradually recovered in the second half of the year.
The profit margin on the profit side gradually recovered and remained stable overall. Demand for consumer electronics etc. was poor in the first half of '23, and production capacity utilization was low, which affected the overall gross profit margin. Profit levels recovered significantly after demand was repaired in the second half of '23. By product split, the gross margins of automotive connectors/connectors/electromagnetic compatibility parts/soft boards/other businesses were 40.01%/42.38%/29.12%/6.06%/23.64%, respectively, and the gross margins of the core business automotive connectors and connectors were +1.48pct/+1.37pct year over year, respectively. Against the backdrop of widespread price pressure on supply chain companies, the company's product competitiveness is strong, and the gross margin of business is increasing steadily.
The 2024 Q1 results showed high year-on-year growth, and the automotive and consumer electronics businesses continued to exceed expectations.
In the first quarter of 2024, we achieved operating income of 1,040 million yuan, +68.77% year-on-year, and net profit to mother of 162 million yuan, +244.43% year-on-year. On the revenue side, shipments in the consumer electronics and automotive electronics business increased sharply year on year in the first quarter, and the subsidiary Henghe's shipments improved markedly compared to last year. R&D expenses in a single quarter were 113 million yuan, an increase of 69.14% over the previous year, and R&D investment increased dramatically. This also indicates that the company is developing plenty of new projects, and long-term growth is highly certain.
The connector industry has a broad market, and the company is expected to continue to grow rapidly with long-term technology and customer resource accumulation. Leading international companies in the connector market, such as Tyco and Amphenol, occupy the main market share. Domestic companies have a low market share in the middle and high-end sector. With continuous improvement in R&D capabilities, the company has significant technical advantages in the field of micro RF connectors. Currently, the company's consumer electronics customers include mainstream mobile phone companies such as Xiaomi, Opal, Backgammon, Samsung, Honor, ZTE, and Huawei. Automotive connectors have entered mainstream domestic car companies such as Geely, Great Wall, BYD, Changan, Chery, and Ideal. Subsequent companies will continue to make full use of their advantages on the technology and cost side, and are expected to consolidate their market share. At the same time, the trend of intelligent upgrading in the downstream consumer electronics, automobiles, and communications fields continues, opening up overall market space, and the company is expected to develop steadily for a long time.
Investment advice
The company's 2024-2026 revenue is expected to be 42.51/54.28/6.360 billion yuan, up 35.9%/27.7%/17.2% year on year. The company's net profit is expected to be 6.41/8.42/1,038 billion yuan, up 80.0%/31.4%/23.2% year on year, corresponding EPS is 1.52/1.99/2.46 yuan, PE 27.3/20.8/16.9 times. Considering the company's obvious competitive advantage in the connector field, the recovery of downstream consumer electronics and rapid growth in the automotive business, the first coverage was given a “buy-A” rating.
Risk warning
Risk of macroeconomic fluctuations: The international and domestic economy is facing challenges. The company's downstream demand mainly comes from consumer electronics terminals and automobiles, which are clearly affected by economic fluctuations. Uncertainty about economic recovery will directly affect company demand.
International trade friction causes supply chain risks: Some of the company's customers are overseas companies, and parts of the production supply chain are overseas. If international trade frictions escalate in the future, it will cause instability in the company's supply chain and customer orders, which will adversely affect the company's operations.
The intelligent development of new energy vehicles falls short of the expected risk: The company's automotive connectors are mainly used in automotive sensors and intelligent modules. If the intelligent development of new energy vehicles falls short of expectations and demand for the company's products is insufficient, it may affect the company's operating performance.
Industry competition increases risk: The downstream products of the company are mainly consumer electronics, communications, and automotive electronics. There are many competitors in the industry, and product upgrades require high technical requirements, leading to an unstable competitive pattern in the industry. If the company's technology research and development falls short of expectations, there is a risk that its market share will decline.