Event: the company released its quarterly report for 2023 on October 27. 1~3Q23 realized revenue of 2.714 billion yuan, YoY-4.3%; net profit of 292 million yuan, YoY-59.3%; deduction of non-net profit of 279 million yuan, YoY-59.7%. Performance is basically in line with market expectations. Affected by the prosperity of the components market and the relationship between supply and demand, the company's revenue decreased, especially from the self-produced business with relatively high gross profit margin, and the company adjusted the prices of some products in order to improve customer viscosity, resulting in a decline in net profit and deduction non-net profit.

3Q23 revenue increased by 29%; the increase in expense rate affected the net interest rate. 1) in a single quarter, the company's 3Q23 achieved revenue of 1.136 billion yuan, an increase of 29.7% over the same period last year, and 21.3% month-on-month growth. 1Q233Q23 revenue of 640 million yuan, 940 million yuan and 1.14 billion yuan, respectively, continued to improve; the company's 3Q23 achieved a net profit of 38 million yuan, down 82.7% from the same period last year; and deducting non-net profit of 36 million yuan, down 82.8% from the same period last year. With the recovery of downstream demand, the company's performance is flexible. 2) profitability: 1~3Q23 gross profit margin fell 12.9ppt to 31.6% compared with the same period last year; net profit margin fell 15.4ppt to 10.6% compared with the same period last year. 3Q23 gross margin fell 26.3ppt to 20.8 per cent year-on-year; net margin fell 23.7ppt to 2.4 per cent year-on-year. The increase in expense rate affects the net interest rate.

We will continue to increase investment in R & D; R & D expenditure will increase by 28% compared with the same period last year. During the 1~3Q23 period, the expense rate increased by 3.1ppt to 15.5% compared with the same period last year. 1) the sales expense rate increased to 4.2% from the same period last year; 2) the management expense rate increased from 1.7ppt to 6.9%; 3) the financial expense rate was 0.9%, compared with 1.0% in the same period last year. 4) the R & D expense rate increased from 0.9ppt to 3.5% year-on-year; R & D expenses increased by 28.5% to 95 million yuan.

By the end of 3Q23, the company: 1) accounts receivable and bills 2.404 billion yuan, an increase of 13.3% over the end of 2Q23; 2) the prepaid amount of 28 million yuan, an increase of 12.7% over the end of 2Q23; 3) inventory of 1.315 billion yuan, a decrease of 0.2% over the end of 2Q23; 4) a contract liability of 10 million yuan, an increase of 12.8% over the end of 2Q23. The net cash flow of 1~3Q23 's operating activities was 402 million yuan, compared with 539 million yuan in the same period last year.

Acquisition of Xiamen Core Generation; layout of active power devices to build competitiveness. Sub-product point of view, 1) self-produced components: this year, the company is affected by the recovery pressure of downstream demand and the intensification of market competition, and the sales volume of components and gross profit margin have declined compared with the same period last year. In the first half of the year, Shanghai Torch Group used its own capital of 174 million yuan to acquire 51.0094% of Xiamen Core I through equity acquisition and capital increase, realizing the leap from passive components to active power devices and enriching the industrial layout. stock business goes hand in hand with emerging business to consolidate and enhance scale and core competitiveness. 2) New materials: the company's new materials plate completes the construction of liquid PCS production line and builds a stable order source with solid polycarbosilane products. 3) Trade: mainly affected by supply and demand and economic situation, consumer customers are still mainly digesting inventory, and shipments are lower than the same period last year.

Investment suggestion: the company is a special MLCC leader; ceramic matrix composites have large-scale production capacity, which is expected to open up a new space for growth; international trade to expand the Southeast Asian market and gradually create benefits. We take into account the downstream demand release pace to adjust the profit forecast, the company is expected to return to the net profit of 529 million yuan, 736 million yuan and 925 million yuan in 2023-2025, respectively, and the current stock price corresponds to the 23x/17x/13x of PE in 2023-2025. We maintain the "recommended" rating, taking into account the company's industry position and the growth of our new business.

Risk tips: downstream demand is not as expected, new product development is not as expected, and so on.