Guoxin Securities: The wave of AI industry development is driving demand for connectors to rise, and a high-end domestic connector window opens

The Zhitong Finance App learned that Guoxin Securities released a research report saying that connectors are connecting bridges in electronic circuits. The automotive sector is the second largest market segment for connectors, and intelligent and new energy vehicles will increase the use of connectors for bicycles and supporting charging piles. With the development trend of the AI industry, the demand for high-speed backplane connectors has increased dramatically, and a high-end domestic connector window has opened. At the same time, there is strong demand for high-speed connectors in the communications and automotive industry, and there is plenty of room for domestic replacement. It is recommended to focus on leading domestic companies with earlier layouts and excellent product performance.

Guoxin Securities's main views are as follows:

Connectors are connecting bridges in electronic circuits and are essential basic electronic components that make up the entire electronic equipment.

Its function is to transmit current or optical signals between devices, components, devices, and subsystems independently or together with cables, to connect, disconnect, or convert current or optical signals, and maintain no changes in signal distortion or energy loss between systems. There are many ways to classify connectors, and each manufacturer has its own classification methods and standards. According to the transmission medium, connectors can be divided into electrical connectors, microwave RF connectors, optical connectors, and fluid connectors. Different types of connectors correspond to different functions and applications.

In the last ten years, the market size of the global connector industry has grown steadily. According to relevant media data, the annual sales volume of global connectors rose from 51.18 billion to US$81.85 billion in 2013-2023, with a CAGR of 4.8%. Domestic, from 2013 to 2023, sales increased from 13.06 billion to US$24.98 billion, a CAGR 6.7%, which is higher than the global level. The downstream application areas are mainly concentrated in communications/automobiles/computers and their peripherals/industry, accounting for 24%/22%/13%/13%, respectively.

The automotive sector is the second largest market segment for connectors. Intelligent automobiles and new energy will increase the use of connectors for bicycles and supporting charging piles.

China has been the world's largest NEV production and sales market for many years. In 2023, China's NEV sales volume was about 9.495 million units, up 37.87% year on year, accounting for 31.55% of total vehicle sales, up 5.91 pcts year on year. Automotive connectors can be divided into three categories: low voltage connectors, high voltage connectors, and high speed connectors.

As domestic electrification enters the latter half, the penetration rate of intelligent technology accelerates, and demand for automotive high-speed connectors is increasing. In 2024, the global automotive high-speed connector market is expected to reach 44.3 billion yuan, a growth rate of 41%. In terms of pattern, according to relevant media data, the top three global automotive connector market shares are all foreign-funded, with CR3 exceeding 65%. The domestic electronic connection technology product matrix has been improved, and it has already entered the core autonomous and controlled supply chain, and the first-mover advantage is obvious.

For the reinstatement giant Tyco, cost control is one of the core competitiveness, and small steps of mergers and acquisitions have accelerated growth.

From 1980 to 2020, Tyco Electronics maintained the largest market share of connectors in the world, and was the leader in connectors in the automotive sector. Resuming its development, during World War II, the company's predecessor AMP relied on military orders, then gradually switched to civilian use. Later, many small mergers and acquisitions achieved rapid market expansion and endogenous expansion. A rich product portfolio, leading product technology and precision processing capabilities are the company's core advantages. Excellent customer stickiness and fine cost control capabilities enable the company to maintain stable and upward profitability in the fierce competition in the connector industry. Since FY2010, the company's gross margin has remained above 30%.

In the field of communication connectors, with the development trend of the AI industry, the demand for high-speed backplane connectors has increased dramatically.

High-speed communication connectors are bridges and links for high-speed data transmission between communication devices. Among them, high-speed backplane connectors are the most difficult in technology and have the widest range of applications. They are commonly used in large-scale communication equipment, ultra-high-performance servers, giant computers, industrial computers, and high-end storage devices. The global backplane connector market was US$1,940 billion in 2021, and is expected to reach US$3,695 billion by 2031, with a CAGR of 6.65%. The domestic high-speed backplane connector market size in 2022 was US$613 million.

Investment suggestions: High-speed connectors in the communications and automotive industry are in high demand, and there is plenty of room for domestic replacement. It is recommended to focus on leading domestic companies with earlier layouts and excellent product performance, such as Electric Connection Technology (300679.SZ) and Lixun Precision (002475.SZ).

Risk warning: Risk of product development falling short of expectations, customer expansion falling short of expectations, and excessive price pressure.