Description of the event

On April 24, Lixun Precision released its 2023 annual report, 2024 quarterly report, and 2024 semi-annual performance forecast. The company achieved operating income of 231.905 billion yuan in 2023, +8.35% year-on-year, net profit to mother of 10.953 billion yuan, +19.53% year-on-year, net profit after deducting non-return to mother of 10.186 billion yuan, +20.65% year-on-year. The company achieved annual revenue of 52.407 billion yuan in the first quarter of 2024, +4.93% year-on-year, net profit to mother of 2,471 billion yuan, +22.45% year-on-year, after deducting net profit of 2.883 billion yuan, or +23.23% year-on-year.

The company expects to achieve net profit of 5.227 billion yuan to 5.445 billion yuan for the first half year of 2024, an increase of 20%-25% over the previous year, and is expected to achieve net profit of 4.789 billion yuan to 5,077 billion yuan, an increase of 15.28% -22.20% over the previous year.

Incident comments

By business: in 2023, the company's consumer electronics business achieved revenue of 197,183 billion yuan, +9.75% of revenue; automobile business revenue of 9.252 billion yuan, +50.46% of revenue, accounting for 3.99%; communication business revenue of 14.538 billion yuan, +13.28% of revenue, accounting for 6.27% of revenue; computer connectivity business revenue of 7.492 billion yuan, -33.58% of revenue; revenue of 3.23%; revenue from other businesses was 3.439 billion yuan, -16.08% year-on-year, Revenue accounted for 1.48%.

The gross margins of consumer electronics, automobiles, telecommunications, computers, and other businesses in 2023 were 10.6%, 15.89%, 15.80%, 20.76%, and 18.83%, respectively. The year-on-year changes were -0.87pct, -0.2pct, 4.67pct, 0.47pct, and -0.3pct, respectively.

The company's 2023 report on the investment income projects of joint ventures and joint ventures was 2,044 billion yuan, a significant increase over 2022, reflecting the profit contribution of major customers in mobile phone assembly. As can be seen from the quarterly report and the 2024H1 performance forecast, the company can still achieve rapid growth in the context of the overall weak recovery of the consumer electronics industry, reflecting the company's advantages in manufacturing and internal management. We judge that shipments of various product lines from major customers are expected to remain strong this year. As a core supporting supplier, the company is expected to participate in more product models and grow with it, and is still on the path of improvement in terms of mobile phone assembly share.

On the premise of consolidating the basic market of the consumer electronics business, the company actively dispatches resources to develop the communication/data center business and automotive business. In the data center field, the company and chip manufacturers and cloud service providers have jointly formulated next-generation high-speed connection standards such as 800G and 1.6T. High-speed copper cables and other products have won customer recognition, expanding cooling, power supply and other businesses to actively embrace AI computing power development opportunities. In terms of automobiles, the company has deep cooperation with leading OEMs and brand customers at home and abroad to open up growth space for various products in the automotive business.

Looking back at the past development of Lixun Precision, the company achieved comprehensive development in multiple categories, multiple customers, and multiple terminals through endogenous and epitaxial mergers and acquisitions in the consumer electronics field. Thanks to the outstanding role of major core customers in consumer electronics innovation and development, Lixun Precision rapidly grew into a company with over 100 billion dollars in revenue. In the past, the rapid development of consumer electronics made everyone ignore the 5-10 year strategic layout of its automotive and communications businesses, but it is undeniable that the growth rate of both has been impressive in the past few years. Today, the company has ushered in a window of opportunity for the development of intelligent automotive, electrification, and AI computing power. With past accumulation in the field of consumer electronics hardware, the company is expected to grow again into an industry giant in the automotive and communications fields in the future. We expect the company's net profit to be 129.53, 15.04, and 18.760 billion yuan respectively in 2024-2026. Considering the company's steady future growth, the current valuation may be undervalued, maintaining the company's “buy” rating.

Risk warning

1. Competition in the automotive industry has intensified.

2. The progress of high-speed copper interconnection falls short of expectations.