Key points of investment
Incident: The company released its annual report for '23 and its quarterly report for '24. In 2023, the company achieved revenue of 683 million yuan, -19% year on year; net profit to mother of 66.57 million yuan, -60.5% year on year; net profit of 59.08 million yuan after deduction, -62.4% year on year. In 24Q1, the company achieved revenue of 194 million yuan, +19.7% year-on-year; net profit to mother was 18.23 million yuan, or -45.1% year-on-year. The company's performance is under pressure, mainly due to weak business demand and consumption of previous inventory, and demand for housing (cage) products declined; although demand for automotive connectors was good, competition was intense.
The 24Q1 business situation recovered month-on-month, and gross margin declined due to reduced capacity utilization and fierce competition. By business, communication connector module revenue in '23 was 348 million yuan, -37% compared to the same period, and gross margin was 5.79pp, mainly due to a decline in demand, and unsaturated production capacity depressed gross profit margins. Revenue from automotive connectors and components was 213 million yuan, +32% year-on-year, with gross margin of 12.54pp. Mainly new products have been introduced into mass production. Customer demand is strong, but intense bidding has put pressure on gross margins. Precision module revenue was 40 million yuan, -8% YoY, gross margin +4.24pp.
By region, the domestic sales business achieved revenue of 564 million yuan, -22% over the same period; mainly communication connectors and components were delivered domestically, and sales revenue declined sharply due to past inventory consumption and a decline in direct customer demand. The export business achieved revenue of 49 million yuan, +1.15% year-on-year.
On a quarterly basis, 23Q1-24Q1's revenue was -8%/-31%/-33%/+6%/+20%, respectively, and net profit to mother was +3%/-79%/-84%/-58%/-45%, respectively. Judging from the month-on-month data, the company's operations are expected to gradually pick up from 23Q4. 23Q4-24Q1 revenue is +21%/+1% month-on-month, and net profit to mother is +69%/+35% month-on-month.
High-speed connectors are expected to benefit AI demand
The company has become a leading supplier in the connector module industry, and has formed close cooperation with Amphenol, Molex, Tyco Electronics, and China Aviation Optoelectronics. The GB200 NVL72 architecture uses an internal copper connection architecture, and the usage of copper cables and related high-speed connectors is expected to increase significantly. As customers focus on developing series products such as QSFP112G and QSFP-DD and continuously optimizing radiator components, the demand for single-channel speed has now reached 112G. With the development of AI, high-speed communication connectors will move in the direction of “56G-112G-224G”.
Issuing equity incentives to strengthen development goals
In March 2024, the company announced the 2024 restricted stock incentive plan. It plans to grant 1.083 million restricted shares to 52 incentive recipients, accounting for about 1.09% of the total share capital, at a grant price of 24.00 yuan/share. According to the equity incentive target, based on 2023 net profit, the net profit growth rate target values for 24-26 are 50%/110%/173%, respectively, and the trigger values are 40%/88%/138%, respectively. On a year-on-year basis, the net profit growth target value for 24-26 is 50%/40%/30%, and the trigger value is 40%/34%/27%.
Profit forecasting
The company's net profit for 24-26 is expected to be 100 million, 150 million, and 190 million, up 53%, 44%, and 31% year-on-year, corresponding to PE 54, 37, and 29x in 24-26, respectively, maintaining a “buy” rating.
Risk warning
Competition intensified; inventory removal progress fell short of expectations; demand for high-speed connectors fell short of expectations, etc.