Incident: On July 19, Denlink Technology released the 2024 mid-year report forecast. 24H1 is expected to achieve net profit of 3.0 to 0.34 billion yuan, an increase of 139.7 to 167.7% year on year; deducted non-net profit of 2.9 to 0.32 billion yuan, an increase of 144.1-174.0% year on year.

2Q24 results were in line with expectations, and increased automation efficiency improved profits. Looking at the single quarter, the company is expected to achieve net profit of 1.38 to 0.173 billion yuan in Q2 in 2024. Looking at the median value, net profit attributable to mother was 0.156 billion yuan in 24Q2, up 99% year on year, down 4% month on month; it is expected to deduct non-net profit of 1.39 to 0.169 billion yuan in the single quarter.

Revenue increased year-on-year, mainly due to: 1. The company's main business maintained steady growth. Among them, the customer structure for automotive connector products was continuously optimized, and revenue from core customers maintained rapid year-on-year growth; with the recovery of consumer electronics industry products, revenue increased significantly year-on-year. 2. With the continuous expansion of the business scale, the advantages of platform-based precision manufacturing processes for major products are gradually showing, and automation efficiency continues to improve. At the same time, the company's operating efficiency continues to improve, production cost control is strong, and the gross margin of major products has increased compared to the same period last year.

The impact of non-recurring profit and loss on net profit is approximately $14 million.

The leading automotive high-speed connector is leading the domestic replacement trend. Along with the electrification of automobiles and the continuous increase in the penetration rate of intelligence, the amount of data transmitted within cars and the number of sensors mounted on bicycles have surged, spawning demand for high-frequency high-speed connectors. Since 2014, the company has deployed the automotive high-speed connector field and has a first-mover advantage. Currently, its products cover Fakra, Mini-Fakra, HSD and Ethernet connectors. On the customer side, it has broken into domestic independent and new-power brands such as Great Wall, Changan, Geely, and BYD, and has achieved large-scale shipments. We believe that the company has clear advantages in various aspects such as product categories, technical barriers and customer resources. In the future, the company is expected to seize the trend of domestic substitution and continue to increase its product share.

Based on RF connectors, BTB penetration rate is accelerated. The company's consumer electronics business focuses on a wide range of products related to miniature electrical connectors in the field of RF signal transmission and testing, and continues to expand BTB connectors, soft boards, antennas, etc., and the product matrix is constantly being enriched. By product: micro RF connectors and electromagnetic compatibility: The company is a domestic leader, with many years of core product layout and has entered the supply chain of the world's leading mainstream Android phone brands; board-to-board connectors: The company's RF BTB products have been used in batches for core customers. The company uses its mobile channel resource advantages to continue to increase the layout and introduction of ordinary BTB in leading customers, contributing to long-term growth.

Investment advice: The company's consumer electronics business is stable, the automobile business penetrates rapidly, and profits are increasing quarterly.

We expect the company's net profit to be 0.685/0.891/1.132 billion yuan in 24-26, corresponding to the current PE price being 23/18/14 times, maintaining the “recommended” rating.

Risk warning: Competition in the industry intensifies; customer imports fall short of expectations; consumer electronics demand falls short of expectations.