The company started with heat-shrinkable materials and deeply laid out the four business segments of electronics, electricity, wire and cable, and new energy.

In the cable industry, GB200 has driven an explosion in demand for high-speed copper connections, driving the company's performance growth; in the electronics industry, the explosion in high-end demand for heat-shrinkable materials has brought opportunities for domestic substitution; in the power industry, increased investment in power grids is driving demand for cable accessories; in the new energy industry, demand for high-voltage fast charging is driving demand for high-power charging guns.

The company has an in-depth layout of four major sectors, which is expected to fully benefit from the needs and opportunities of various industries and achieve rapid growth in performance.

? Deeply cultivate the domestic heat-shrinkable materials industry and lay out four business segments: electronics, electricity, wire and cable, and new energy.

The company started with the heat-shrinkable materials business and has an in-depth layout of four business segments: electronics, electricity, wire and cable, and new energy. The main products include heat-shrinkable tubes, wires and cables (high-speed communication lines, automotive wires, consumer electronics wires, industrial wires), cable accessories, and new energy products. The company continues to increase its market development efforts and continues to develop new products and new customers, so that the operating income of the company's related products has increased to varying degrees.

The compounded annual growth rate of the company's revenue was 9.5% in 2019-2023. In 2024 Q3, the company achieved revenue of 4.82 billion yuan, a year-on-year increase of 20.13%. In 2024, the company's electronic products achieved revenue of 1.203 billion yuan, a year-on-year increase of 16.85%; wire and cable products achieved revenue of 0.767 billion yuan, an increase of 38.27%; power products achieved revenue of 0.619 billion yuan, an increase of 17.76%; and new energy products achieved revenue of 0.432 billion yuan, an increase of 25.83% year-on-year.

? The scale of AI single-node computing has expanded, and the increase in the number of servers in a single cabinet has stimulated the demand for copper cable connections. AI has greatly increased power consumption in data centers, and the importance of reducing power consumption in data centers is highlighted. Copper interconnect is a performance and cost compromise choice in the development of AI scale-up capabilities. Compared with PCB boards, it has distance advantages over longer distances, and power consumption and cost advantages over optical cables. Nvidia released GB200 chips and GB200 NVL72 & NVL36 cabinets, greatly improving computing power performance and drastically reducing energy consumption costs. Architectural changes have greatly increased the number of servers in a single cabinet, and the cost performance ratio of copper cable connections is prominent. The GB200 uses a copper cable solution, and demand for copper cables will explode with GB200 shipments.

? The domestic industrial structure has been upgraded, and demand for high-end heat-shrinkable materials has exploded. In the field of heat-shrinkable materials, domestic manufacturers are mainly concentrated in the low-end field, and overseas manufacturers are mainly concentrated in the middle and high-end fields. With the upgrading of the domestic industrial structure, the next generation of clean energy power construction such as high-speed rail, urban rail transit, automobiles (driverless driving, new energy), and nuclear energy will drive China's heat-shrinkable materials industry into a new period of high growth. The upgrading of domestic industries has brought about an explosion in demand, bringing new opportunities for domestic manufacturers to lay out in the middle and high-end fields.

? Benefiting from increased investment in power grids and the rapid development of new energy sources, the cable accessories market has ushered in a boom cycle. During the “14th Five-Year Plan” period, the State Grid plans to invest 2.4 trillion yuan in the power grid. China Southern Power Grid Construction plans to invest about 670 billion yuan, which is higher than the total investment in the national grid during the “13th Five-Year Plan” period. Demand in the cable accessories market will continue to rise, driven by multiple factors such as increased investment in electricity and the construction of intelligent power systems.

? The NEV industry is growing rapidly, and market demand for rechargeable guns and other related products will continue to be released. According to statistics from the Ministry of Industry and Information Technology, domestic NEVs continued to grow rapidly in the first half of this year, with production and sales increasing by 30.1% and 32%, respectively. With the rapid increase in NEV ownership and charging facilities and the continuous upgrading of technology, the upstream industry of various precision electronic devices and components (such as automobile wiring harnesses, connectors, etc.) in the NEV electronics field will continue to develop rapidly, and market demand for products such as charging guns will continue to be released.

Investment suggestions: The company is deeply involved in the electronics, electricity, wire and new energy business. Copper cables will achieve a sharp rise in volume and price as AI develops and demand for internal cabinet connections grows. With subsequent GB200 batch shipments, the company's high-speed communication line shipments will increase, product shipment growth and product structure optimization will drive the company's rapid growth in performance and profitability. We expect the company's revenue from 2024 to 2026 to 6.92, 8.18, and 9.74 billion yuan, respectively, up 21%, 18%, and 19% year-on-year, and net profit to mother of 0.91 billion yuan, 1.15 billion yuan, and 1.43 billion yuan, with year-on-year increases of 30.0%, 26.1%, and 24.5%, corresponding PE 34.5X/27.4X/22.0X, respectively. Maintain a “Highly Recommended” rating.

Risk warning: Downstream market demand risk, economic environment and policy risk, market competition risk, raw material price fluctuation risk, technical risk.