Incident: The company released the 2024 interim performance forecast.
The second-quarter results slightly exceeded market expectations, and product structure optimization continued to improve profitability: the company's net profit for the first half of 2024 was 0.3-0.34 billion yuan, a year-on-year increase of 140%-168%, after deducting non-return net profit of 0.29-0.32 billion yuan, a year-on-year increase of 144%-174%. Among them, net profit for the second quarter was 0.14-0.17 billion yuan, an increase of 77%-122%. The performance slightly exceeded market expectations. We believe that the high year-on-year increase in the company's performance in the first half of the year was mainly due to product structure optimization brought about by the company's high-margin product release: 1) High-margin product automotive connectors benefited from high-margin smart driving models and remained high in volume shipments. 2) Higher gross margin RF connector products benefit from a recovery in consumer electronics terminal demand and steady revenue growth. 3) The company continues to strengthen cost reduction and efficiency, improve production line automation efficiency, strengthen cost control capabilities, give full play to the advantages of manufacturing process platformization, and continue to increase the gross margin of major products.
The company is expected to maintain a high growth trend in the future with the recovery in demand for consumer electronics terminals and the introduction of new products combined with the release of high-end smart driving models.
High-frequency high-speed connectors benefit from high volume revenue growth from domestic customers, and overseas customers are investing in long-term growth: the company is a leading manufacturer of domestic high-frequency high-speed connectors. The company has a complete range of automotive high-speed connector products, and downstream customers cover mainstream domestic car companies such as Huawei series, Chery, BYD, and Geely.
1) The penetration of smart driving models in China has accelerated, and production schedules have continued to increase revenue: high-end smart driving models represented by the Wanjie series met the inflection point of the domestic demand: in the first half of '24, Hongmeng Zhixing delivered a total of 194,207 vehicles; customers of traditional car companies represented by Geely benefited from overseas travel and intelligent transformation, and sales continued to increase. The cumulative sales volume of Geely passenger cars in the first half of the year was 0.9557 million vehicles, an increase of 41% over the previous year. The automobile industry entered the peak vehicle sales season in the second half of the year. The company accelerated production schedule for high-frequency high-speed connectors, and is expected to maintain the high revenue momentum of high-frequency high-speed connectors, driven by increased demand combined with increased production capacity. 2) Continued efforts to expand overseas customers and accumulate long-term growth: The company's overseas customer base covers leading TIER1 companies in the automotive field. The company continues to make efforts to introduce products and expand new customers to open up long-term growth space for high-frequency high-speed connectors.
The consumer electronics business benefits from the rise of Huawei and industry recovery, and BTB connectors are expected to contribute additional performance: the company's RF connectors and other mobile phone products have entered leading Android terminal companies such as HOVM and transmission, and their share is relatively stable. 1) In the short term, along with the continuous recovery in mobile phone terminal shipments and the second half of the year entering the peak demand season for consumer electronics terminals, the company's consumer electronics sector product revenue is expected to continue to increase; 2) In the long term, the company's RF and ordinary BTB connector products will benefit from the introduction of core customers, and the product will continue to be produced and shipped in a stable volume. Further breakthroughs in core clients to increase stand-alone usage, compounding the increase in sales volume of core customers and contributing to new performance increases, can be expected to benefit from the introduction of leading BTB products and the introduction of domestic 5G millimeter waves to open up room for incremental demand in the long term.
Profit forecast and investment rating: We maintain our 2024-2026 net profit forecast of 0.7/0.94/1.17 billion yuan, corresponding to 2024-2026 PE of 22/16/13 times, respectively, and maintain a “buy” rating.
Risk warning: Demand in the consumer electronics market falls short of expectations; sales of intelligent and new energy vehicles fall short of expectations; risk of increased competition.