Investment Rating - The report initiates coverage on Huafeng Technology with an "Accumulate" rating and a target price of 59.86 RMB per share, based on a 75x PE valuation for 2026 [6][5]. Core Views - Huafeng Technology is positioned as a leader in high-speed connectors in China, benefiting from the increasing demand for short-distance interconnects driven by AI and domestic computing power expansion. The company is gradually releasing production capacity for high-speed line modules developed for major clients, which is expected to lead to sustained performance growth [1][15]. - The report highlights the growth potential in the communications sector, driven by the demand for high-speed interconnects in AI clusters, with a projected market size of 24.1 billion RMB by 2029, growing at a CAGR of 45% from 2025 to 2029 [2][16]. - In the defense sector, the company is expected to benefit from the "14th Five-Year Plan" military budget increase, with a projected 7.2% year-on-year growth in military spending in 2025, enhancing the outlook for defense orders [3][17]. - The industrial segment is anticipated to see stable growth due to the rising penetration of new energy vehicles and the trend towards 800V high-voltage systems, with the high-voltage connector market projected to reach 33.7 billion RMB by 2026, growing at a CAGR of 42% from 2022 to 2026 [3][18]. Summary by Sections Company Overview - Established in 1958, Huafeng Technology is a leading supplier of optical connectors and interconnection solutions in China, focusing on high-speed connectors and system interconnection solutions across communications, defense, and industrial sectors. The company has achieved significant milestones in developing high-speed backplane connectors, breaking the monopoly of foreign leaders in the domestic market [15][25]. Communications Sector - The company is deeply collaborating with major clients to meet the growing demand for high-speed interconnects in AI clusters. The increasing GPU computing power and bandwidth requirements are driving the need for higher signal transmission rates. The domestic high-speed backplane connector market is projected to reach 24.1 billion RMB by 2029, with a CAGR of 45% from 2025 to 2029 [2][16]. Defense Sector - The defense segment focuses on defense connectors and related system interconnection products. With the military budget expected to reach 1.78 trillion RMB in 2025, a 7.2% increase year-on-year, the company is well-positioned to capture growth in defense orders [3][17]. Industrial Sector - The industrial connectors primarily serve the new energy vehicle and rail transportation sectors. The market for high-voltage connectors in new energy vehicles is projected to reach 33.7 billion RMB by 2026, with a CAGR of 42% from 2022 to 2026. The company is also expanding its applications in drone and eVTOL systems [3][18].