Incident: The company released its 2023 annual report and 2024 quarterly report. The company's revenue in 2023 was 562 million yuan, +10.43% year over year; net profit to mother was 59 million yuan, -8.07% year on year; after deducting non-net profit of 53 million yuan, -28.02% year on year. The 24Q1 company's revenue was 130 million yuan, +88.03% YoY, -32.98%; net profit to mother was 0.15 million yuan, which turned a year-on-year loss into profit, or -58.74% month-on-month; after deducting non-net profit, it turned a year-on-year loss into a profit of -57.73%.

New projects were put into mass production, and 24Q1 profitability improved year over year: the company's revenue grew steadily in 2023. By product, 1) MIM product revenue was 321 million yuan, -3.65% year over year; gross profit margin was 40.03%, -4.77pct year on year. 2) Revenue of other metal craft products and plastic products was 228 million yuan, +38.67% year on year; gross profit margin was 40.54%, +0.50pct year on year. 3) Mold fixture revenue was 8.1633 million yuan, +13.96% year over year; gross profit margin was 17.34%, +4.71 pct year on year. 24Q1 revenue grew rapidly, mainly due to: 1) Low base due to sluggish demand for downstream consumer electronics in the same period last year. 2) 24Q1 The overall industry and product demand is relatively stable, and the company's R&D projects are invested in mass production in an orderly manner to drive high revenue growth. In 2023, the company's gross margin was 39.83%, -2.49pct; the net margin was 12.16%, -6.64pct yoy. 24Q1 gross margin was 40.39%, +10.41 pct year on month, -8.66 pct month on month; net margin was 11.72%, +21.98 pct year on year, -12.19 pct month on month. The high year-on-year increase in profitability in 24Q1 was mainly due to the release of demand for new businesses and new projects, continuous improvement in the company's capacity utilization rate, and continuous restoration and improvement of overall profitability. In terms of expenses, sales/management/R&D/finance expenses in 2023 were 1.08%/9.60%/14.71%/-0.74%, respectively, -0.48/+0.26/+2.80/+1.06pct. The increase in R&D expenses was mainly due to the company's continuous increase in R&D investment in new projects and products in '23, the expansion of the R&D team, and the increase in share payment fees. Financial expenses were mainly due to exchange rate fluctuations and a decrease in exchange earnings.

The hinge business has achieved sales transformation, and I am optimistic that MIM will benefit from increased demand for folding screens: according to IDC data, global folding screen phone shipments reached 15.9 million units in 2023, an increase of 25% over the previous year, and this growth trend is expected to continue from 2024-2025. Benefiting from the growth of the downstream market, the demand for MIM continues to rise as the main process for hinges, the core component of folding screens. In terms of the MIM precision parts business, by introducing the folding screen hinge business and achieving sales transformation, the company hedged the decline in some of its original product lines such as tablets, laptops, desktop computers, etc. due to fluctuations in demand, and achieved sales revenue of 321 million yuan in 2023, which is basically the same as the previous year. The construction project for the MIM precision parts production base project in Changsha was completed and accepted in December 2023, and then gradually put into production according to customer needs. As of May '24, the company has purchased some equipment and completed commissioning, and is in the trial operation stage.

The penetration rate of non-MIM business continues to rise, actively exploring new directions of 3D printing: the company's non-MIM business includes laser processing, CNC, wire cutting, precision injection molding, etc. In 2023, the company's capabilities in laser processing, CNC and other metal precision manufacturing were further recognized by customers. Product numbers continued to increase, overall penetration rate continued to rise, and revenue from the non-MIM precision parts business increased 38.67% year on year. In recent years, the non-MIM parts business has become one of the main drivers of the company's business growth. In terms of production capacity, Huizhou's newly added production capacity for non-MIM precision components began to gradually generate economic benefits in 23Q4. In 2023, leading consumer electronics manufacturers Honor and Apple began large-scale use of 3D printed titanium alloy parts in some of their product lines. The company has purchased 3D printing equipment for 3D printing manufacturing process research. Currently, it has certain technical reserves in metal 3D printing technology, and continues to increase R&D investment in process manufacturing of new functional materials. It is expected to promote the integration of MIM and 3D printing technology, which will help further break through the limitations of the MIM process on product structure in mold manufacturing, achieve rapid prototyping and shorten product manufacturing time.

First coverage, “added” rating: The company specializes in R&D, design, production and sales of precision components with high precision, high density, complex shapes and beautiful appearance. The company's products are mainly used in folding screen phones, tablets, laptops, desktop computers, smart touch capacitive pens, smart wearable devices, aerial photography drones, sports cameras, etc. Customers include well-known domestic and foreign consumer electronics brands and EMS manufacturers such as Apple, Honor, Amazon, and Anke Innovation. We are optimistic that the company's MIM business will fully benefit from the continued growth in demand for folding screen phones. The company is actively deploying emerging technologies such as artificial intelligence, folding screen phones, and 3D printing, and the MIM business is expected to continue to grow. Furthermore, the company is actively expanding non-consumer electronics markets such as automotive electronics and medical devices, and is expected to contribute additional volume in the future. The company's net profit for 2024-2026 is estimated to be 119 million yuan, 168 million yuan, and 233 million yuan respectively. EPS is 0.81 yuan, 1.06 yuan, and 1.47 yuan respectively, and the corresponding PE is 24X, 18X, and 13X, respectively.

Risk warning: Risk of macro-environmental fluctuations, customer orders falling short of expectations, production capacity release falling short of expectations, and intensifying industry competition.