Incident: The subsidiary Leting Zhilian has now begun production and operation, and production capacity has continued to expand. The high-speed communication line products produced by Leting Zhilian have been iterated to 400G/800G/1.6T (single channel 224G). The product quality has been highly recognized by customers, and some high-speed communication line products have reached the international advanced level.
Comment: Revenue and profit both achieved rapid growth in the first quarter of 2024. The rapid increase in AI computing power demand and related capital expenses led to an increase in demand for high-speed connection cables, and the company's gross margin increased.
In 2023, the company achieved revenue of 5.723 billion yuan, up 7.16% year on year; gross profit margin of 32.63%, up 1.10pct year on year; achieved net profit of 700 million yuan, up 13.97% year on year, and achieved steady growth in annual results. On a quarterly basis, in the first quarter of 2024, the company achieved revenue of 1,389 billion yuan, an increase of 21.62% year on year; gross profit margin of 33.16%, up 2.07 pct year on year; and realized net profit of 184 million yuan, an increase of 77.27% year on year.
AIGC's large models and applications continue to be iteratively upgraded, driving the AI computing power infrastructure to increase demand for high-speed, high-performance connection cables. The company's wire product business is expected to usher in an expansion cycle, and the subsidiary Leting Zhilian will steadily begin production and operation activities. The next-generation GB200 AI cluster solution launched by Nvidia fully uses copper connections in the cabinet to replace traditional optical connection solutions, driving demand for upstream high-speed communication cables and is expected to usher in a new expansion cycle. In 2023, the company's wire products achieved revenue of 1,165 billion yuan, a year-on-year decrease of 14.52%. In terms of data center cables, the company completed the development of various specifications of 800G high-speed communication lines during the reporting period. They have characteristics such as high frequency and high transmission rate. Some specifications have been verified by customers and shipped in small batches.
The company's electronic products business grew steadily, and the new energy business achieved rapid growth. In '23, the company's electronic products achieved revenue of 2,255 billion yuan, an increase of 4.96% over the previous year. Among them, new products in the aviation sector passed COMAC certification. In '23, the company's new energy business achieved revenue of 881 million yuan, an increase of 29.63% over the previous year. The development of high-power oil-cooled DC guns with a rated current of 800A was completed during the reporting period, and small-batch production was completed; at the same time, it completed the development of European and American standard AC/DC integrated charging guns and completed TUV certification.
Profit forecast and investment suggestions: As a leading domestic polymer materials and wire and cable company, we are optimistic that the company will fully benefit from the AIGC era to drive the boom in data center construction and the increase in demand for high-speed connection cables. From 2024 to 2026, the company is expected to achieve revenue of 66.78/79.12/9.197 billion yuan, net profit to mother of 9.14/12.81/1.01 billion yuan, and EPS of 0.73/1.02/1.19 yuan/share, covered for the first time, giving it a “buy” rating.
Risk warning: Demand from the digital communication and telecom side falls short of expectations, and business development falls short of the expected risk.