Summary of the announcement: The company released its 2022 annual report and the first quarter report of 2023. It achieved revenue of 839 million yuan in 2022, an increase of 47.74% over the previous year, net profit of 168 million yuan, an increase of 54.02% over the previous year, after deducting net profit of 157 million yuan from non-Gumo, an increase of 58.47% over the previous year. 2023Q1 achieved revenue of 162 million yuan, a year-on-year decrease of 8.18%, net profit of 33 million yuan, an increase of 3.06% over the previous year, and net profit of non-return mother of 30 million yuan, a year-on-year decrease of 2.75%.

Downstream demand affects performance growth, and product customers continue to expand. The company's 22Q4 revenue was 181 million yuan, up 16.43% year on year, down 22.94% month on month, and Guimu's net profit was 32 million yuan, up 38.13% year on year, down 34.48% month on month. Customer demand was affected by adverse macro factors and was affected by adverse macro-factors. The overall development was relatively rapid throughout the year. The communication business grew steadily. The CAGE communication connector housing revenue was 391 million yuan, an increase of 46.42% over the previous year. Mainly due to the accelerated increase in demand for network construction such as overseas data centers, the revenue of precision structural components of communication connectors was 161 million yuan, an increase of 9.22% over the previous year, and the revenue of automobile connectors and components was 161 million yuan, benefiting from high downstream demand and the gradual introduction of new products into mass production, achieving more than doubling the year-on-year increase. 22Q4 gross profit margin was 35.68%, an increase of 1.78 pct over the previous year, and the annual comprehensive gross profit margin was 35.65%, a slight increase of nearly 1 pct over the previous year. The CAGE gross profit margin of communication connector housing was 35.22%, which was relatively stable. The gross profit margin of precision structural components of communication connectors was 43.16%, an increase of 3.43 pct over the previous year. Production processes were continuously optimized, outsourcing costs were reduced, and gross margin of automobile connectors and components increased 1.7pct to 34.52% year on year. The cost rate for the 22-year period was 14.25%, a slight increase of 0.68pct over the previous year. The net interest rate increased 0.82 pct to 20.08% year on year, mainly due to increased sales and R&D expenses. The growth rate of the company's performance in 23Q1 slowed due to demand and the higher base for the same period last year. Gross margin and net interest rate were 37.57% and 20.51% respectively, up 2.4 pct and 2.24 pct over the same period last year. Product structure optimization and scale effects gradually showed to drive an increase in profitability.

AIGC opens up space for communication growth, and vehicles benefit from electric intelligence and domestic substitution. The innovation of AI business models and the expansion of application fields, and domestic digital economy policies drive the continued high demand for computing power, driving the growth and upgrading of underlying cloud infrastructure. As an important component, communication connectors will benefit from diverse computing power demand scenarios. The company mainly provides high-speed backplane connector components and I/O connector components to global leaders such as Moss, Amphenol, and AVIC Optoelectronics, which are used in large-scale data storage and switching equipment such as base stations, servers, and data centers, benefiting from AI and the digital economy. Mass production of the company's 2xN CAGE series began in '22 and successfully entered the Tyco communication business module. With the development of new customers and the expansion of the internal business of the original customers, the expansion of product models and the increase in the share of high-value-added products is expected to increase further. In terms of automobiles, the China Automobile Association expects domestic NEV sales to reach 9 million units in 23, an increase of 35% over the previous year. Continued promotion of electric intelligence will drive demand for high-voltage and high-speed high-frequency connectors, and local manufacturers will benefit from domestic substitution trends. The company continues to deepen cooperation with existing customers such as BYD, Nandu Power, Honeycomb Energy, etc., and simultaneously develops new customers such as Fuao, Changan, Xiaopeng, and Rosenberg. Products such as electronic locks, electric water pumps, and electronic control units have passed customer certification one after another and have been gradually introduced into mass production. Various new products such as controller system connectors and high-voltage connectors are being developed one after another, and the value of bicycles is expected to increase.

Investment in R&D continues to be increased, and new production capacity at home and abroad is gradually being released. The company has outstanding technical advantages in mold design and precision manufacturing. It has established a technical system covering the entire process of product design and new processes, precision mold development and manufacturing, product precision processing and technical inspection. The R&D investment for the full year of 2022 was 65.575 million yuan, an increase of 76.49% over the previous year, and the share of revenue rose to 7.81%. The number of R&D personnel increased from 177 at the end of 21 to 280. The communications sector followed customers in developing series products such as QSFP112G and QSFP-DD. Currently, the layout in the field of new energy is still in the development stage. In the process, relevant technical researchers for product design, process design, performance testing, etc. were continuously introduced to develop new products such as high-voltage connectors and electronic control connections. At the same time, the level of automated production was raised by optimizing equipment performance and installing tooling jigs, etc., to maintain stable and efficient production capacity. New production capacity was gradually released. By the end of '22, the IPO fundraising project had invested nearly 80% of the connector production base. Machinery, equipment, personnel, etc. had been introduced, and production was gradually put into operation according to customer needs. The fixed increase was completed in December 22, and the production capacity scale was laid out ahead of schedule to connect with subsequent production. The company established a new Malaysian subsidiary in '22, expanded production and extended the industrial chain, implemented a multi-point layout to avoid the impact of trade frictions on overseas business. At the same time, it is conducive to enhancing the ability to serve core customers nearby and accelerate the development of new global customer groups.

Investment suggestions: Dingtong Technology is a leading supplier of connector components in China. It has outstanding mold development and precision manufacturing capabilities, high-quality and rich customer resources, actively transforming its automotive business to Tier 1, deepening cooperation with end customers, and its performance has entered a period of high growth. Considering the impact of macro-factors such as the pandemic on communications and automobile demand, we expect the company's net profit for 2023-2025 to be 243 million yuan/328 million yuan/435 million yuan respectively, and EPS of 2.46 yuan/3.32 yuan/4.40 yuan respectively, maintaining the “buy” rating.

Risk warning: downstream demand for 5G, new energy vehicles, etc. falls short of expected risks; risk of customer expansion falling short of expectations; risk of shortage of upstream raw materials and price increases; risk of increased market competition; and production progress of fund-raising projects falls short of expectations.