Incident: On the evening of July 9, the company released a performance forecast for the first half of 2024. It is expected to achieve net profit of 0.381-0.469 billion yuan, an increase of 30%-60% year on year; net profit without return to mother is 0.358-0.441 billion yuan, an increase of 30% to 60% year on year.

Comment: The company's various businesses grew in the first half 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 continued to rise. In the first half of 2024, the company's revenue from all four businesses of electronic products, power products, and new energy vehicles increased; in terms of gross margin, the company's gross margin continued to increase, mainly due to the company's increased marketing efforts, improving the level of production automation, and cost reduction and efficiency measures, which led to a continuous increase in the company's overall net profit margin.

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, and the company's wire product business is expected to usher in an expansion cycle. 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. The company completed the development of 800G high-speed communication line products in various specifications in 2023. They have characteristics such as high frequency and high transmission rate. Some specifications have been verified by customers and shipped in small batches. At present, the company has completed the development of a variety of single-channel 224G high-speed communication line samples. Some samples have passed customer testing and are in the small-batch production stage.

The subsidiary Leting Zhilian has steadily begun production and operation activities, and is actively preparing to expand production for the continuously rising demand of downstream customers. Leting Zhilian's high-speed communication cable production capacity has been steadily expanding. Currently, in terms of key production equipment, it has more than 140 chargers, more than 20 core wire machines, and has placed orders for dozens of wrapping machines and multiple core wire machines, making active preparations for further production expansion. Currently, Leting Zhilian is at the leading level in China in terms of high-speed communication cable production capacity. It has large-scale production capacity, and is expected to continue to enhance its competitive position in the industry during the rapid expansion phase of downstream demand.

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. The company is expected to achieve revenue of 6.678/7.912/9.197 billion yuan from 2024 to 2026, net profit to mother of 0.914/1.281/1.501 billion yuan, and EPS of 0.73/1.02/1.19 yuan/share, maintaining 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.