Event: On April 18, 2023, the company released the 2022 Annual Report and the First Quarter 2023 Report. In 2022, the company achieved total revenue of 839 million yuan, an increase of 47.7% over the previous year; net profit of Guimu was 168 million yuan, an increase of 54.02% over the previous year; after deducting net profit of 157 million yuan, an increase of 58.47% over the previous year. The first quarter of 2023 achieved revenue of 162 million yuan, a decrease of 8.18% over the previous year; the net profit of the mother was 33.22 million yuan, an increase of 3.06% over the previous year; after deducting the net profit of the non-return mother was 30.44 million yuan, a decrease of 2.75% over the previous year.
Results grew rapidly in '22, and the 23Q1 results were in line with expectations. By expanding its business scale and improving its technical level, the company achieved a revenue growth rate of 47.7%, which is higher than the average growth rate of the connector market. Its position within the industry has steadily improved, and it has become a leading enterprise supplier in the connector module industry. Net cash flow from operating activities in 23Q1 fell 80.9% year on year, mainly due to the slowdown in the company's performance growth and higher operating costs in terms of raw materials and labor; R&D investment increased 34.12% year-on-year, which meant that the company increased R&D investment, increased R&D projects, and expanded the R&D team.
The profit quality is excellent, and the focus is on R&D investment. Benefiting from the high degree of refinement and customization of the company's products, the company's profitability has maintained a high level. Gross margins for 2020, 2021, and 2022 were 37.3%, 34.8%, and 35.7% respectively; net interest rates were 20.3%, 19.3%, and 20.1% respectively; ROE was 14.3%, 14.2%, and 13.3%, respectively. The company focuses on R&D investment. The R&D expenditure rates in 2020, 2021 and 2022 are 7.8%, 6.5%, and 7.8% respectively, which are the most important components of the period expenses. As of 2022, the company has obtained 113 patents, including 36 authorized invention patents and 77 utility model patents in China. At the same time, many of the company's research projects are in the R&D stage, which are used in the fields of new energy vehicles, I/O connectors, backplane connectors, etc., and the continuous transformation of R&D results promotes the company's long-term development.
The server connector category has been upgraded, and the share of major customers continues to increase. The increase in high-speed downstream application scenarios for servers places higher demands on the transmission rate and stability of high-performance communication connectors.
Since the increase in transmission rate accelerates the degree of heating of the connector, it is necessary to achieve higher heat dissipation efficiency by installing radiators. The self-supply ratio of radiators is continuously increasing to save raw material costs, causing gross margin to rise steadily against the backdrop of adverse global inflation. At the same time, category expansion is driving the company's share among major customers to continue to increase. The company is actively expanding production to meet downstream demand. After the newly raised project is put into operation, it is estimated that 620 million new communication connector production capacity will be added, with CAGE and WAFER connectors accounting for 95% and 5% respectively.
With the expansion of the company's categories and production capacity, it is expected that the company's communication connector business will maintain rapid growth.
Automotive connectors are being transformed to Tier-1, expanding the product matrix while expanding the customer base. The company's automotive business segment focuses on controllers, wiring harness connectors, and high-voltage connectors, and achieved revenue of 161 million yuan in 2022, with a year-on-year increase of 112.51%. The company focuses on building BYD as a benchmark customer. Currently, the supply of products with BYD includes electronic locks, a series of electric water pumps, electronic control units, high-pressure copper busbars, etc., and the value of bicycles continues to increase. At the same time, the company's customer resources continued to increase, and in addition to BYD, it expanded high-quality customers such as Phoenix Electric, Nandu Power, Honeycomb Energy, and Yiwei Lithium Energy. The company's new fund-raising projects are expected to contribute 3.7 billion dollars of output after delivery, of which high voltage connectors, electronic control connectors, electric water pump connectors and high voltage interlock connectors account for 40%, 30%, 27%, and 3% respectively. Benefiting from the increase in the penetration rate of new energy vehicles and the increase in the localization rate of automobiles, it is expected that the company's automotive connector products will continue to grow rapidly.
Investment advice: The company focuses on R&D, production and sales of precision components for communication connectors and precision components for automotive connectors. With integrated comprehensive service capabilities integrating precision mold design and development and product manufacturing, the company has established long-term and stable cooperative relationships with international connector giants. The company's product range continues to expand, and its share among major customers continues to increase; at the same time, the company is actively transforming to Tier-1 in the field of automotive connectors, deeply tied to industry leader BYD. The company directly benefits from the development of AI driven by the demand for computing power, and the growth of the communication connector business is expected to exceed expectations. We expect the company's net profit to be 2.46/3.48/5.03 respectively in 2023-2025, with a corresponding growth rate of 46%/41%/44%/, and the corresponding PE of 27.7X/19.6X/13.5X respectively, maintaining the “increase in holdings” rating.
Risk warning: demand from major customers falls short of expectations, risk of falling gross margin, risk of rising raw material prices, risk of restricted stock being lifted.