Announcement summary: The company announced its 2023 performance forecast. It is expected to achieve net profit of 11%-150 million yuan for the whole year, a year-on-year decrease of 37.44%-54.13%, and net profit after deduction of 0.9-130 million yuan, a year-on-year decrease of 39.17%-57.89%.

Performance is under pressure in the short term, and equity incentives show confidence in development. Based on the median value of the forecast range, 23Q4 achieved net profit of about 0.3 billion yuan, a year-on-year increase of 192.84%, a slight decrease of 13.23% month-on-month, and net profit after deducting about 36 million yuan, an increase of 83.17% year-on-year and an increase of 11.4% month-on-month. The performance showed a positive trend. The decline in profit for the year was mainly due to the construction of a photovoltaic stent production base in the US falling short of expectations, a decrease in sales to local customers, and a decline in orders due to poor demand in the consumer electronics and communication connector markets. The cost rate for the first three quarters of 2023 was 12.33%, +3.3 pct year on year, 12.94% in the Q3 quarter, +5.77pct year on month, and +3.81 pct month-on-month. The decline in demand, the slowdown in production capacity progress, and the increase in period expenses all caused short-term performance to face some pressure. As the US production base is put into operation and related orders are released one after another, the company's revenue and profit is expected to gradually recover. According to the latest announcement, the company's 2023 restricted stock incentive plan aims to grant 6.8197 million restricted shares to no more than 290 incentive recipients, including company executives, middle management, and core technical (business) personnel. The company's performance assessment target is set based on 2023, and the revenue or net profit growth rate from 2024 to 2026 will not be less than 30%/50%/70%.

Global PV installations are booming, and US factories are starting production to increase production capacity. According to Global PV, the world's new PV installations are expected to be around 381.33GW-429.43GW in 2023, up 62.3%-82.7% year on year. According to SEIA and EIA reports, the new PV installed capacity in the US reached a record 33 GW in 2023, an increase of 55% year over year, mainly due to easing supply chain challenges and high demand driven by IRA. It is expected that 45/55 GW will be added in 2024/2025, maintaining a strong growth trend. The company's photovoltaic bracket business is currently mainly overseas. The North American market covers leading manufacturers such as NT, GCS, FTC, etc., actively explores leading European customers such as Soltec and PVH, and develops its own brands domestically through Tianjin Shengwei. The company's existing photovoltaic stent production bases are located in Yueqing, Tianjin, Thailand and the United States. By coordinating domestic and foreign capacity distribution, production costs are reduced, close to customer needs, and service support efficiency is improved. The company is also actively expanding product categories around photovoltaic brackets. The business scope of the subsidiary Haiyin New Energy includes the production and sale of photovoltaic supporting electrical equipment such as photovoltaic panel modules, photovoltaic inverters, and junction boxes. The 533 million fixed increase project includes the construction of a production base for the core components of photovoltaic brackets (374 million) and R&D and base construction for full-scenario applications of photovoltaic stents (54 million) to help expand production capacity and product iteration.

High-speed connector technology is leading, and the communication+automotive industry benefits from opportunities. The company is one of the few domestic enterprises with the ability to mass-produce high-speed connectors. With SFP and SFP+ optical connectors as representative products, it has established long-term cooperative relationships with high-quality customers such as Huawei and ZTE. It has developed 800G high-speed connectors and has entered the small-batch trial stage. The subsidiary Wuhan Yigu Optoelectronics has an optical module covering a speed range of 1G-400Gbps, and 800G is being designed and developed, which is expected to benefit from the high computing power demand brought by AIGC. On the automotive side, domestic BYD, Huawei, and Wei Xiaoli are all based on the BEV+ Transformer smart driving model, which accelerates the entry of urban NOA functions, and is promoted by policies such as superimposing L3/L4 road traffic pilots. High-level autonomous driving is expected to be implemented at an accelerated pace, driving the volume and price of high-speed high-frequency connectors to rise rapidly. The company has developed products including automotive BMS low voltage, high speed high frequency, ECU connectors, etc., and has been cooperating with mainstream manufacturers such as Huawei, BYD, and Geely for use in models including Huawei Smart Choice and its partner models with Changan BAIC. The revenue and net profit of automotive connectors in '22 were 130 million yuan and 19 million yuan respectively, which increased markedly year-on-year growth, and the business is progressing smoothly.

Investment proposal: Yihua Co., Ltd. is one of the few domestic enterprises with the ability to mass-produce high-speed connectors. It focuses on developing the automotive connector and photovoltaic bracket business. It has abundant customer resources, and the product is gradually being released and the value is increasing.

Overseas PV demand continues to grow. The company's PV business has broad room for growth, and the automotive connector business is growing rapidly. Considering market competition and the phased impact of US conversion on the PV bracket business, we adjusted the profit forecast. Net profit for 2023-2025 is estimated to be 132 million/359 million/474 million yuan, respectively (the original forecast value was 352 million/462 million/574 million yuan), and EPS was 0.78 yuan/2.10 yuan/2.78 yuan respectively, maintaining the “buy” rating.

Risk warning: Risk of rising prices of major raw materials; risk of international trade conflicts; risk of downstream industries falling short of expectations; risk of technology iteration; increased risk of competition in the NEV industry.