The company released the third quarterly report of 2023: 2023Q1-Q3 realized income of 2.96 billion yuan (year-on-year-12.1%), net profit of 334 million yuan (year-on-year), and non-return net profit of 284 million yuan (year-on-year-42.3%). Single Q3 realized income of 1.117 billion yuan (year-on-year + 3.2%), net profit of 130 million yuan (year-on-year), and non-return net profit of 114 million yuan (year-on-year-37.1%). Benefit from customer inventory optimization, order repair, revenue return; profit end pressure is mainly due to changes in product structure-a higher exchange base in the same period last year.

The bottom of the engraving machine warms up, the electronic cigarette is under pressure for a short time, and the multi-business structure escorts the growth. Engraving machine customer CRICUT warehouse end (23Q2 inventory year-on-year-39.2%, month-to-month ratio + 0.2%), order repair, superimposed new products & peak season and other factors, it is expected that engraving machine Q3 month-on-month improvement, year-on-year growth beautiful; e-cigarette, the company's supply chain continues to upgrade, core modules, the whole machine have been mass production, temporarily due to customer product series iteration, shipments are slightly hindered In the future, with the popularity of new-generation products & capacity climbing, e-cigarettes are expected to resume rapid growth; in addition, the company announced the construction of a production base in Mexico, which is expected to undertake incremental orders for automotive electronics in the United States in the future. The company is deeply engaged in intelligent manufacturing and deeply bound with customers, and is expected to continue to open new products and expand its share in the fields of healthy environment, intelligent control components and automotive electronics, and Q3 is expected to achieve steady growth.

Profit short-term pressure, steady repair can be expected. The single Q3 gross profit margin is 28.7% (year-4.5pct) and the net profit rate is 11.7% (year-6.2pct). Profit pressure is mainly due to product structure adjustment (the proportion of high-margin e-cigarettes is expected to decline)-high exchange base, with the improvement of Q4 machine, core module capacity utilization, profit is expected to repair. From the perspective of cost performance, the expense rate during the single Q3 period is 16.3% (year-on-year + 3.8pct), of which the sales / management / R & D / financial expense rate is 1.8% 0.0pct/+0.3pct/-1.1pct/+4.6pct, respectively. The fluctuation of financial expenses is mainly due to the exchange effect.

The cash flow is slightly under pressure and the operating capacity is stable. 2023Q1-Q3 net operating cash flow is 331 million yuan (year-on-year-458 million yuan), single Q3 is 34 million yuan (year-on-year-195 million yuan), slightly pressurized is expected to be mainly due to normal fluctuations in customer accounts. In terms of operating capacity, as of 2023Q1-Q3, the turnover days of accounts receivable, accounts payable and inventory were 107.91 days, 92.41 days and 108.59 days respectively.

Profit forecast: the company's 2023-2025 net profit is expected to be 4.9pm 6.6pm, corresponding to PE 29X, 22X, 18X respectively, maintaining the "buy" rating. The slight reduction in profit forecast is mainly due to the fact that the e-cigarette production capacity is lower than expected.

Risk hint: downstream demand recovery is lower than expected, capacity climbing is not as expected.