Event: Company Releases 2023 Annual Report and 2024 Quarterly Report

The performance was in line with expectations, and net profit continued to grow: throughout '23, the company achieved revenue of 550 million yuan, yoy +10.4%, net profit to mother of 60 million yuan, yoy -38.1%, net profit of 50 million yuan after deducting non-return to mother, yoy -28.0%; revenue increased quarterly, and performance was in line with expectations. Among them, MIM precision parts revenue was 320 million yuan, yoy -3.7%, and non-MIM precision parts revenue was 230 million yuan, yoy +38.7%. On the cost side, the company's R&D demand for customized products and advanced technology from customers increased, further increasing investment, investing 80 million yuan in R&D in 23 years, yoy +36.5%; R&D/sales/management rates were 14.7%/1.1%/9.6%, respectively, and YOY +2.8/-0.5/+0.3 pct, respectively. On the profit side, the gross margin of the company's main business in '23 was 39.83%, yoy-2.96pct; the change in gross margin was mainly due to the decline in demand for the original product line of some customers and the decline in the gross margin of the MIM business. In 24Q1, the company achieved revenue of 130 million yuan, yoy +88.0%, increasing demand from major customers; net profit of 100 million yuan to mother; net profit of 10 million yuan after deducting non-return to mother. The gross profit margin was 40.4%, yoy+10.4pct; the net profit margin was 11.7%, yoy+22.0pct. The main demand was released in an orderly manner, and the company's production capacity was effectively utilized.

The new MIM business achieved sales transformation, and the non-MIM penetration rate continued to rise: In the MIM precision parts business, the company introduced folding screen hinge-related businesses and achieved sales transformation.

The construction project of the company's MIM precision parts production base project in Changsha, Hunan was completed in December 2023, and then gradually put into production according to customer needs. In the non-MIM precision parts business, the company continues to advance in the depth and breadth of cooperation with existing customers through laser processing, CNC and other metal precision manufacturing capabilities, and continuous output of high-quality and high-value comprehensive technical solutions, and the overall penetration rate continues to rise. The company's additional non-MIM precision parts production capacity in Huizhou, Guangdong, began to gradually generate economic benefits in 2023Q4.

Continuously enhance core competitiveness and actively lay out emerging industries: the company continuously optimizes process technology, continuously promotes the improvement of overall process design capacity and efficiency, and maintains stable profitability and leading position in the industry. The company has established diversified precision manufacturing capabilities around the application of new materials to provide customers with one-stop precision manufacturing solutions. The company will continue to follow the development trends and needs of the industry and technology, actively lay out emerging industries, products and technologies, including artificial intelligence, folding screen phones, 3D printing technology, etc., seize market opportunities brought about by industry and technology development, and continue to increase technology research and development efforts to achieve diversified development of the industry and customers, increase sales scale and increase profitability. At the same time, production capacity is arranged in overseas markets to meet the growing business needs of overseas customers and provide strong support for expanding a wider market.

Profit forecast and investment rating: Based on the slight decline in demand from some of the company's customers compounded by the decline in gross margin of the MIM business, we adjusted the profit forecast. We expect the company's 2024-2025 net profit of 17/270 million yuan (previous value was 200/30 million yuan), giving the company a net profit forecast of 40 million yuan in 2026. The current market value corresponds to 24-26PE of 17/11/7 times. The company's non-MIM penetration rate is rising and production capacity is generating benefits. We are optimistic about the company's future growth and maintain a “buy” rating.

Risk warning: Competition in the industry intensifies, the consumer electronics boom falls short of expectations, the pace of climbing new production capacity falls short of expectations, and orders from major customers fall short of expectations.