Description of the event
On April 24, Weifeng Electronics released its 2023 annual report and 2024 quarterly report. During the 2023 reporting period, the company achieved operating income of 487 million yuan, an increase of 1.32% over the previous year, and realized net profit of 130 million yuan, an increase of 16.35% over the previous year. Net profit after deducting non-return to mother was 105 million yuan, a year-on-year decrease of 2.24%. The company achieved operating income of 100 million yuan in the first quarter of 2024, a year-on-year decrease of 12.24%, realized net profit of 0.18 million yuan, a year-on-year decrease of 61.76%, and net profit after deducting non-return to mother was 0.18 million yuan, a year-on-year decrease of 31.32%.
Incident comments
Looking at the main business split, the company achieved revenue of 267 million yuan in 2023, accounting for 54.87% of revenue, a year-on-year decrease of 14.19%; automotive connector revenue of 120 million yuan, accounting for 24.75% of revenue, up 39.90% year on year; and new energy connector revenue of 93 million yuan, accounting for 19.21% of revenue, up 22.99% year on year. From a gross margin perspective, the company's gross profit margin for the industrial connector business in 2023 was 43.16%, up 1.14 pct; the gross profit margin of the automotive connector business was 50.29%, down 1.72 pct year on year, and the gross margin for new energy connectors was 29.96%, down 10.18 pct year on year. In 2023, the company's prosperity in the industrial sector recovered slowly. Production capacity expansion and price competition intensified in the photovoltaic and automotive sectors, which was further transmitted to upstream component manufacturers, leading to a decline in gross margin. In the photovoltaic sector, the company's sales of long wire harness products increased in 2023, and changes in product structure led to a decline in gross margin.
The company's revenue showed negative growth in the first quarter of 2024. We think it is mainly due to the weak boom in the industrial connector industry. Insufficient orders during the Spring Festival combined with the company's plant relocation led to a decrease in shipments. In terms of profit levels, in addition to current price cuts in the industry weakening corporate profitability, the company is currently facing a cycle of rising prices for products such as copper and gold in the upstream precious metals. Considering that the company's direct material costs account for about 60%, the rise in precious metal prices suppresses the company's profit level to a certain extent. The company's gross profit margin and net profit margin in 2024Q1 were 37.06% and 18.60% respectively, and gross margin declined by 4.8 pct and 6.52 pct, respectively. Subsequent companies are expected to transfer some price pressure downstream to restore their own profit levels.
As a domestic industrial control connector leader, the company will fully benefit from the acceleration of the domestic substitution process in the industrial field in the future. Furthermore, the company actively expands global industrial control customers, has global competitiveness, and continues to increase its share in the field of industrial control connectors, and is expected to achieve long-term steady growth in the future. In the automotive and new energy sector, the company has excellent technology accumulation and card position advantages, and actively embraces the rapid development opportunities of the industry. In the short term, it will become an important driving force for the company's growth, and the company is also actively reserving and deploying high-frequency high-speed connectors for automobiles. We are optimistic about the company's future growth. We expect the company's net profit to be 1.03, 1.38, and 181 million yuan respectively in 2024-2026, maintaining the company's “buy” rating.
Risk warning
1. Industrial control connector industry sentiment fluctuates;
2. Automobile sales fell short of expectations.