Incident: In 2023, the company achieved operating income of 1.84 billion yuan, an increase of 15.2% over the previous year; achieved net profit of 200 million yuan, an increase of 28.2% over the previous year; net profit after deducting non-return to mother was 190 million yuan, an increase of 27% over the previous year. In the fourth quarter of 2023, the company achieved revenue of 480 million yuan, a year-on-year decrease of 8.1%; achieved net profit of 50 million yuan, an increase of 42.4% over the previous year; net profit after deducting non-return to mother was 50 million yuan, an increase of 36.1% year-on-year
Profitability continues to increase, and expense rates have increased slightly. Profit side: In 2023, the company's gross sales margin/net margin was 18.4%/10.8%, up 0.6 pp/1.1 pp year on year; single Q4 gross margin/net margin was 18.7%/11.4%, respectively, up 3.2 pp/4pp year on year, respectively. Cost side: Company 2023 sales/management (excluding R&D)/
The financial expense ratios were 0.5%/1.6%/0.1%, respectively, compared with +0.1pp/ -0.06pp/+0.2pp. Among them, the increase in the sales expense ratio was mainly due to the increase in sales staff remuneration and rental expenses. The increase in the financial expense ratio was mainly due to the impact of exchange rate changes and the increase in interest expenses.
Battery connection system: The “moat” of technology is deep, and product iteration drives double profits. The company extended the composite busbar heat pressing process to battery connection systems, effectively reducing product volume and improving the space utilization rate and production efficiency of battery modules. Currently, it has occupied a high share in the Ningde era, and is actively expanding customers such as Guoxuan Hi-Tech and Honeycomb Energy. As of 2023, the market share of H1 battery connection systems is about 15%. In 2023, the company's battery connection system achieved revenue of 1.46 billion yuan, accounting for 79.7%, and gross margin of 16%, an increase of 1.8pp over the previous year.
At present, the development of larger size and lower costs of power batteries is the general trend. The company has leading manufacturing technology and equipment advantages, and continues to launch lower-cost FPC and FFC products, which is expected to fully benefit from the development of industry demand.
Composite busbar: downstream multi-field layout to help move steadily and far-reaching. The company has been deeply involved in industrial electrical busbars for many years. The products are used in rail transit, new energy power generation, and industrial frequency conversion. Later, it exploited opportunities in the electric vehicle industry to expand electronic control busbars. As of 2023H1 electronic control busbars, the market share was about 30%. The company continues to expand the resources of high-quality downstream customers, and has accumulated CRRC, Sunshine Power, Rockwell, BYD, Farah Electronics, etc. In 2023, the company's industrial electrical busbars and electronic control busbars achieved revenue of 14/210 million yuan respectively, an increase of 1.9%/3.8% year-on-year. They are expected to benefit from the growth in demand from major downstream customers and drive stable business development in the future.
Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 2.27 billion yuan, 2.74 billion yuan, and 3.28 billion yuan, respectively, and net profit to mother grew by 26.9%/36.5%/27.9%, respectively. The company is a leading domestic battery connection system company. It has a unique hot pressing process and competitive advantages in self-developed equipment. The products fully meet the downstream requirements for larger size and cost reduction. The company was given 25 times PE in 2024, corresponding to a target price of 39.00 yuan, and the first coverage was given a “buy” rating.
Risk warning: the risk that the penetration rate of new battery connection system products falls short of expectations; risk of product development falling short of expectations; risk of product price reduction being too large due to increased competition in the industrial chain; risk that new customer expansion falls short of expectations; risk of exchange rate fluctuations affecting the company's overseas business; and the risk of a single major customer in the main business is relatively high.