First-quarter results turned losses into profits, and profitability improved. In 2023, under the influence of adverse factors such as the macroeconomic environment and cyclical adjustments in the consumer electronics industry, the company continued to actively expand its market business and seek customer orders. In 2023, it achieved revenue of 721 million yuan, an increase of 21.34% over the previous year; achieved net profit of 31 million yuan, a year-on-year decrease of 36.99%. Since the second quarter of 2023, the company has turned losses into profits at the overall level, and maintained steady growth in business volume and profit levels in the second half of the year. Looking at the first quarter of 2024, the company's business operations are developing well and the number of customer orders is growing steadily. In Q1 of 2024, it achieved revenue of 151 million yuan, an increase of 30.13% over the previous year, and achieved net profit of 4.399 million yuan. The year-on-year increase was 154.33%. In terms of profitability, 2024Q1's gross margin was 26.32%, up 17.51pct year on year; the net sales margin was 2.92%, up 11.27pct year on year, and profitability continued to improve in the single quarter. The company focuses on connector product development and in-depth research on precision manufacturing technology, and has established a core technology system with independent intellectual property rights, including waterproof Typr-C technology, all-in-one card holder development technology, fully automatic multi-strip integrated molding technology, and high-precision terminal bending technology.

Deeply cultivate the precision connector business and insist on research and development as the core. The company achieved a series of new product and technological breakthroughs in 2023, and the business basically formed a multi-track business pattern providing diversified product types, covering 3C consumer electronics, semiconductor cooling materials, automobiles, photovoltaics and energy storage. 3C consumer electronics sector: BTB board-to-board connectors and RF RF coaxial connectors were developed and shipped in small batches in 2023; successfully independently innovated and developed automotive intelligent connectivity products for automotive infotainment systems, safety systems, etc., including FAKRA connectors, Mini-FAKRA connectors, HSD connectors, automotive gigabit Ethernet connectors, vehicle-grade Type-C interfaces, etc., and began verification and supplier introduction processes at downstream benchmark customers in the second half of 2023. New energy sector: Self-developed connectors and photovoltaic junction box products used in photovoltaic inverters, junction boxes and photovoltaic modules, and successfully passed UL industry certification in 2023, and is also in the TUV certification process; high-voltage high-current connectors, CCS and other products used in energy storage batteries have also begun to enter the import and verification process for key downstream customers, and the company is expected to achieve small-batch supply in 2024.

Actively explore the field of semiconductor heat dissipation to help the wave of domestic substitution. In 2023, the company began to get involved in metal heat sink materials used in semiconductor chips, and to meet the new needs of the downstream market, cooperate with core customers to carry out joint R&D and innovation, and promote the localization and replacement process of related materials. The company plans to restructure the original IPO fundraising project and change part of the capital raised to a semiconductor metal heatsink material project and an automobile high-frequency signal cable and connector project. Dongtai Runtian, a wholly-owned subsidiary of the company, will use its existing plant to carry out construction and operation. The total investment of the two new projects is 271.94 million yuan. The company expects to add 10.9 million semiconductor metal heatsinks per year, 70 million automotive Fakra high-speed connectors, and 26 million automotive Fakra high-speed connector cable components after delivery. Among them, the semiconductor metal heat sink material project will use a total construction area of about 19,570 square meters to purchase approximately 127 production equipment such as CNC machining centers, high-speed milling machines, and Komatsu servo presses. According to the fund-raising project change announcement issued by the company, the project is expected to achieve operating income of 271 million yuan after completion, and is expected to achieve a total profit of 23.295 million yuan, which has strong economic benefits. We believe that as the company continues to invest in R&D and innovate independently, new products and technologies are expected to accelerate iteration, and future performance is expected to continue to benefit.

Profit forecast and investment rating: We expect the company's net profit to be 0.85/1.74 billion yuan in 2024-2026, and the current stock price corresponding to PE is 54/27/17 times, respectively. We believe that 1) The company adheres to independent innovation and R&D investment, has a number of core technologies, certifications and patents, and actively expands product and technology development dimensions in new business fields, which has promoted the company's connector product innovation and technological progress. 2) The company is deeply involved in the precision electronic connector industry, builds smart factories through automation equipment, realizes deep integration of the company's business with new intelligent manufacturing technologies and industries, and continuously improves the company's level of intelligent manufacturing integrating logistics, information flow and automation. 3) The company actively promotes the second phase of the domestic subsidiary plant expansion project, plans and lays out the construction of overseas manufacturing bases, changes the investment of some of the original IPO fund-raising projects to new transformation and upgrading projects, and realizes overall manufacturing capacity planning and upgrading. Therefore, we are optimistic about the company's future performance development, covered for the first time, and gave it a “buy” rating.

Risk warning: risk of macroeconomic fluctuations; risk of new product technology development falling short of expectations; risk of global management; increased risk of market competition.