Incident: On the evening of January 26, Dingtong Technology revealed its 2023 performance forecast. It is expected to achieve operating income of 683 million yuan in 2023, a year-on-year decrease of 18.64%; net profit to mother of 70.3772 million yuan, a year-on-year decrease of 58.22%; after deducting non-net profit, it is estimated to be 61.7417 million yuan, a year-on-year decrease of 60.74%.

2023Q4's revenue recovered significantly year over month. According to the company's 2023 performance forecast and the company's three-quarter report data, the company is expected to achieve revenue of 192 million yuan in the 2023Q4 single quarter, up 6.2% from 2023Q4, 20.9% month-on-month increase, and revenue levels will improve markedly; the company expects to achieve net profit of 0.17 billion yuan in 2023Q4, an increase of 116.8% over the 2023Q3 billion yuan. Due to the company's overall macroeconomic impact, demand in the communications market declined. At the same time, due to downstream terminal inventory removal, the company's high-speed communication connector business demand was weak and communication connector revenue declined; in addition, competition in the NEV connector market intensified, and the company faced cost pressure, but we saw that 2023Q4 direct customer demand has gradually increased, sales revenue has increased month-on-month, and the company's business has returned to an upward boom channel.

The company's communications business continues to expand and is expected to benefit profoundly from technological changes. The company's communication connectors and components mainly include high-speed backplane connector components and I/O connector components. Through the process structure, they are divided into precision structural parts and shells (CAGE), etc., and are an important component of communication connector modules, and are eventually used in large-scale data storage and exchange equipment such as servers, data centers, and base stations. Currently, the company is expanding its horizontal category mainly with shell cage products, and is continuously increasing cooperation with customers in the QSFP-DD 112G/OSFP-DD/OSFP series. We believe that with the rapid development of artificial intelligence and other technologies, the company's connector products are expected to be the first to benefit as an important component.

The company has increased its automotive business layout, and can expect high growth in the future as production capacity is expanded. The company's automotive business continues to deepen cooperation with existing customers such as BYD, China Changan, Nandu Power, Honeycomb Energy, Fuao Auto, and Rosenborg, and the number of mass-produced projects has gradually increased based on existing processes. At the same time, based on existing customers, the company continues to increase the development of new customers, and has successfully developed new customers such as FAW, Sai Chuan Electronics, and Tongyu Automobile in China. On August 15, 2023, the company announced a convertible bond plan. It plans to issue 795 million yuan of convertible bonds, of which 488 million yuan will be invested in NEV parts production and construction projects, 177 million yuan will be invested in R&D center construction projects, and 130 million yuan will supplement working capital. We believe that along with the continuous increase in the company's NEV parts project and the continuous increase in the company's R&D investment, it is expected that the company's growth curve will be further extended and new performance increases.

Investment advice: In the short term, due to external macroeconomic factors, we are adjusting the company's profit forecast. We expect the company's revenue to reach 6.98/11.91/1,764 billion yuan respectively from 2023 to 2025, and net profit to mother is expected to reach 0.72/2.03/308 million yuan respectively, corresponding to PE of 62/22/14X. We believe that while the industry is developing rapidly, the company is expected to grow rapidly with its own technical advantages and maintain the “recommended” rating.

Risk warning: Overseas demand for the company's products fell short of expectations; sales of new energy vehicles fell short of expectations; the expansion of the company's product categories fell short of expectations.