Matters:
On July 18, 2024, Denlink Technology released its 2024 semi-annual performance forecast: the company achieved net profit of 3 to 0.335 billion yuan (YoY +139.72% ~ 167.69%) in the first half of 2024, and achieved net profit of 2.86 to 0.321 billion yuan (YoY +144.08% to 173.95%) in the first half of the year. On a quarterly basis, the company achieved net profit of 1.38 to 0.173 billion yuan (YoY +76.73% ~ 121.48%) in 2024Q2 and 1.35 to 0.17 billion yuan (YoY +81.85% to 128.90%) in 24Q2.
Commentary:
24H1 consumer electronics industry revived & automotive connector customer structure optimized, and main business revenue grew steadily.
In the consumer electronics business, after experiencing a decline in demand for consumer electronics terminals, the consumer electronics recovery gradually drove smart terminal devices to resume growth in the second half of 2023. The company has long been deeply involved in consumer electronics connector products, and its consumer electronics customers cover many leading smartphone companies, including Xiaomi, OPPO, Backgammon, Samsung, Honor, ZTE, and Huawei. 24H1's consumer electronics products followed the recovery of the consumer electronics industry, and revenue increased significantly year-on-year. In terms of the automotive business, the company has an in-depth layout of automotive high-frequency high-speed connectors. The product range is rich and has entered the supply chain of many major domestic automobile manufacturers. The customer structure for automotive connector products has been continuously optimized, and the revenue of core customers has maintained rapid year-on-year growth.
With the in-depth layout of high-frequency high-speed connectors for automobiles, the acceleration of domestic replacement is expected to drive long-term business growth. Since cars are in motion for a long time and are used outdoors, they face a complex surrounding environment, so higher requirements are placed on automotive connectors. Among them, high-voltage connectors and high-frequency high-speed connectors have high barriers. The industry is still dominated by overseas companies, and domestic manufacturers, such as electric connection technology, are rapidly catching up. The electrification and intelligence of automobiles continue to advance, and demand for high-frequency high-speed connectors is growing rapidly. The company has an in-depth layout of high-frequency high-speed connectors for automobiles. The product range is rich and has already entered the supply chain of many major domestic automobile manufacturers. Currently, it is in a period of customer expansion, and the acceleration of domestic substitution is expected to drive long-term steady growth in the automotive connector business.
The automation rate improvement and cost optimization results were remarkable, and the gross margin of major products increased year-on-year. With the continuous expansion of the business scale, the company's main products gradually showed the advantages of platform-based precision manufacturing processes, and automation efficiency continued to improve. At the same time, the company continued to improve operational efficiency and control production costs, and the gross margin of major products increased in the first half of 2024 compared to the same period last year. The increase in gross margin of the main products combined with the increase in revenue has driven a significant increase in the company's net profit to mother.
Investment advice: Electric connection technology is a leading domestic connector manufacturer. It has long been deeply involved in consumer electronics connectors and has forward-looking BTB connector technology. In addition, the automotive connector business opens up room for long-term growth. We expect the company to achieve net profit of 0.666, 0.826, and 1.009 billion yuan in 24-26, and select Hongrida, Ricoda, and Yihua shares, which are also in the connector industry, as comparable companies, and give the company 36 times PE in 2024, with a target share price of 56.74 yuan, maintaining a “strong push” rating.
Risk warning: Consumer electronics demand recovery falls short of expectations, automotive electronics business competition intensifies, customer development progress falls short of expectations