Decrease in investment returns led to a decline in profits

The company released its 24-year report. In the first half of the year, it achieved operating income of 1.82 billion yuan, a year-on-year decrease of 3%, and net profit to mother of 31.3 million yuan, a decrease of 22% over the previous year. The 2Q quarter achieved revenue of 1 billion yuan, a year-on-year increase of 7%, and net profit to mother of 3.98 million yuan, a decrease of 75% year-on-year. The main reason for the decline in the company's performance was a year-on-year decrease of 10.49 million yuan in investment income from the joint venture company Dongchang Investment; profits from overseas projects increased year-on-year due to the completion and settlement of power transmission and transformation projects in Bangladesh, while overall profits in other sectors remained flat year-on-year.

The main business operation is stable, and profit is slightly better than the same period last year

By product: 1) Automobile wiring harness revenue was 0.507 billion yuan, a year-on-year decrease of 25%, but gross margin increased 3.1 points year-on-year. The operation is steady, and the company is cooperating with more different OEMs and parts manufacturers.

2) Optical communications revenue was 0.452 billion yuan, gross profit margin 12%; copper conductor revenue was 0.231 billion yuan, gross profit margin was 13.6%.

The company has increased the expansion of operator and non-operator markets and continues to cultivate overseas markets; laser chips are delivered in small batches; revenue from high-temperature superconducting strips and project applications has increased, and industrialization is being implemented at an accelerated pace. 3) Overseas engineering revenue was 0.58 billion yuan, up 6% year on year, and gross margin increased 5.6 points year on year to 21.9% year on year.

The current international political and economic situation is complicated. The company moderately bids for reserve projects on the basis of a prudent and secure strategy to stabilize and dig deeper into the existing market.

R&D investment has increased, and progress has been made in optical communication and superconductivity

R&D expenses were 0.11 billion yuan, an increase of 11% over the previous year, mainly due to an increase in R&D investment in vehicle wiring harnesses, engine wiring harnesses and pre-research projects for new energy vehicles. Other fields: 1) Optical communication: The company has accelerated the development of supercomputing center business, and has made significant progress in the development and mass production of high-speed optical modules and 50G PON optical module products. The company ships filters in the field of lidar in small quantities. 2) Superconductivity field: The company promotes the application of high-temperature superconducting materials in fields such as magnetically constrained controlled nuclear fusion, superconducting induction heating, and magnetically drawn single crystals.

Optoelectronics integration, collaborative development

The company uses technological innovation to drive product upgrades, cultivate new quality productivity, and form a strategic layout of “optoelectronic integration and collaborative development”. The optical communication industry is based on network-based communication products such as “optical bars, optical fibers, optical cables”, etc., extending optical chips, optical devices, optical modules and other products and big data acquisition, analysis applications and information services. The power transmission industry has formed an industrial pattern of “overseas power engineering - automobile wiring - superconducting strip - wire and cable”, and continuously promotes the innovation, development, transformation and upgrading of new energy and materials.

Profit forecasting and investment advice. Due to the decline in interim profit, we lowered our forecast. The net profit due to the 2024-2026 is 0.08 billion yuan, 0.099 billion yuan, and 0.118 billion yuan, respectively (the original forecast was 0.121 billion yuan, 0.153 billion yuan, and 0.191 billion yuan), maintaining the “gain” rating.

Risk warning: operators' demand for optical cables falls short of expectations, delivery of automobile wiring harnesses falls short of expectations, overseas engineering progress falls short of expectations, market competition exceeds expectations, technology research and development risks, and exchange rate risks.