Incident: On April 25, the company released its 2024 quarterly report. 1Q24 achieved revenue of 1.61 billion yuan, YoY -9.5%; net profit to mother of 230 million yuan, YoY +2.7%; deducted non-net profit of 210 million yuan, YoY -2.8%.
The performance was in line with market expectations. The company's downstream demand has slowed, revenue has declined year over year, and profit growth has slowed year over year.
1Q24 revenue/profit increased month-on-month; increased profitability. 1) Revenue side: In 3Q23, the company's revenue increased 0.01% year on year, and the growth rate slowed; from 4Q23 to 1Q24, the company's revenue declined for two consecutive quarters, mainly due to a slowdown in the demand-side pace. In 1Q24, the company's revenue decreased by 9.5% year on year, but achieved a 60.3% month-on-month increase. 2) Profit side: From 1Q23 to 4Q23, the company's net profit to mother maintained a high growth rate, with year-on-year increases of 38.1%, 40.9%, 24.0%, and 36.7%, respectively. Net profit for 1Q24 increased 2.7% year over year. The growth rate slowed, but achieved 45.4% month-on-month growth. 3) Profitability: The company's 1Q24 gross margin increased 4.4ppt to 40.3% year on year; net margin increased 1.8ppt to 15.8% year on year.
Continue to increase investment in R&D; repayments affect operating cash flow. The cost ratio increased by 3.6ppt to 20.1% year-on-year during the 1Q24 period: 1) the sales expense ratio decreased by 0.02ppt to 2.2% year over year; 2) the management expense ratio increased by 2.1ppt to 9.5% year over year; 3) the financial expense ratio was -0.2%, compared to -0.04% in the same period last year; 4) the R&D expense ratio increased 1.6ppt to 8.5% year over year. By the end of 1Q24, the company: 1) accounts receivable and notes of $5.46 billion, up 16.7% from the beginning of the year; 2) prepayments of $0.7 billion, up 50.0% from the beginning of the year; 3) inventory of $1.0 billion, a decrease of 5.5% from the beginning of the year; 4) contract liabilities were $60 billion, a decrease of 11.4% from the beginning of the year.
Net cash flow from operating activities was -370 million yuan in 1Q24 and -290 million yuan in 1Q23.
Collaborative development of advantageous industries and new industries; continuous strengthening of capacity building. 1) At present, the company has formed a cross-regional group industry development pattern of “three regions, one hospital and twelve departments”. Relying on technology accumulation in defense, commercial aerospace, communications, deep-sea, etc., the company continues to strengthen and expand the dominant industries of connectors and cable components, micro motors and control components, and relays; actively expand new businesses such as optical transmission, high-speed interconnection, millimeter wave, new energy interconnection and drive, and airborne equipment; cultivate new industries such as intelligent equipment and services; layout and expand the new electronic components industry to promote collaborative development between advantageous industries and new industries to achieve collaborative development from a single component to new industries Overall solution for automation and drive control Program transformation and upgrading. 2) In 2023, the company carried out capacity building around the needs of new industries, new fields, and major industrialization projects. Jiangsu Ole produced 1.53 million new infrastructure optical module projects with an annual output of ready for use, Suzhou Huazhan produced 397.62 million new infrastructure and other industrialization projects progressed in an orderly manner, supporting the company's structural optimization and industrial layout, and laying a good foundation for sustainable development.
Investment proposal: The company is a core supplier of special connectors. While expanding its main business advantages, the company accelerates the layout of strategic emerging industries such as commercial aerospace, data centers, and low-altitude economy, further enhances market competitiveness and economic efficiency, and realizes transformation and upgrading from a single component to integrated interconnection and drive control solutions. We expect the company's net profit from 2024 to 2026 to be 913 million yuan, 1.03 billion yuan, and 1,326 million yuan, respectively. The current stock price corresponds to 2024-2026 PE of 20x/16x/13x respectively. Maintaining the “Recommended” rating, taking into account the advantages of the company's traditional business and the accelerated layout in new business areas.
Risk warning: fluctuating raw material prices, orders falling short of expectations, etc.