Incidents:
The company announced its 2023 results. According to the company's announcement, in 2023, the company achieved revenue of 6.210 billion yuan, an increase of 3.16% over the previous year; realized net profit of 750 million yuan, an increase of 35.11% over the previous year; realized net profit withheld from mother was 692 million yuan, an increase of 37.22% over the previous year. The 2023 results were in line with market expectations.
Comment:
The connector track has long slopes and heavy snow, and multi-category products have driven a steady increase in revenue. According to the company announcement, the company achieved revenue of 6.210 billion yuan (yoy +3.16%) in 2023. 1) By product, in 2023, the company's connectors achieved revenue of 4.432 billion yuan (yoy +14.28%), motors achieved revenue of 1,258 million yuan (yoy -16.21%), relays achieved revenue of 326 million yuan (yoy -9.21%), and optical communication devices achieved revenue of 135 million yuan (yoy +8.51%). The company's connector business incubated various branches such as aerospace, high-speed, deep-water sealing, and liquid cooling series, covering commercial aerospace, data centers, deep-water applications, etc., to continue to consolidate the dominant position in the industry and contribute to the business The main source of revenue; 2) According to subsidiary companies, Suzhou Huazhan steadily operated the connector cable business, achieving revenue of 1,491 billion yuan (yoy +1.30%), and Lin Quan Electric achieved revenue of 1,178 billion yuan (yoy -16.02%), mainly due to changes in the pace of plant construction and production. As the company's fund-raising and production expansion project progresses smoothly, the company's revenue is expected to continue to increase steadily as the expansion of production of the two types of connectors and motors superimposes the advantages of the main business.
Product structure upgrades have led to increased profitability and rapid growth in performance. According to the company announcement, the company achieved net profit of 750 million yuan (yoy +35.11%) in 2023. Our analysis believes that the high performance increase was mainly due to the increase in the overall profitability of the company's products. The company's gross margin in 2023 was 37.99%, an increase of 4.99 pcts compared to 2022. By product, the gross margin of connector products increased 6.06 pcts to 38.49% compared to 2022, and the increase in high-end connector sales led to an increase in the overall profitability of the company's products; 2) The company's net profit margin in 2023 was 13.98 million yuan %, an increase of 3.16 pcts over 2022. The increase in net interest rates is mainly due to management improvements and continued deepening of cost reduction and efficiency. Considering the diversification of the company's downstream market and the combination of equity incentives to drive management improvements, the company's profitability is expected to further improve in the future, driving continued high growth in performance.
The core supplier of domestic aerospace connectors benefits from the high downstream boom. 1) Military products: As the core target of the aerospace industry chain, the company is the main R&D and production unit for various types of precision guided weapons in China. It will continue to benefit from the mass production of precision guidance weapons by the Science and Industry Group during the 14th Five-Year Plan period; 2) Civilian products: Increased use of 5G construction connectors+import substitution of high-end products. The company uses large amounts of new products and high added value, further expanding revenue and profit volume. 3) The company continues to increase investment in new product technology research and product development such as integrated transmission interconnection, high-speed data transmission interconnection, and high-reliability optoelectronic interconnection in key scientific research projects to enhance the competitiveness of the company's products.
The 2024-2025E profit forecast was lowered and the “Buy” rating was maintained. Considering the increase in expenses due to the amortization of the company's equity incentive expenses, we lowered the company's 2024-2025E net profit forecast to 90/1.17 billion yuan (previous value was 1,06/1.36 billion yuan) and added the 2026E net profit forecast to 1.56 billion yuan. The PE corresponding to the current stock price is 19/15/11 times. Considering that the company, as a core supplier of connectors and micro motors in China, has significantly benefited from the boom in the downstream industrial chain, the company's performance is expected to continue to grow rapidly as production capacity release and demand release accelerates, so it maintains a “buy” rating.
Risk warning: The growth rate of military spending falls short of expectations, market competition intensifies, and demand for downstream orders falls short of expectations.