Performance summary: In the first three quarters of 2023, the company achieved operating income of 2.52 billion yuan, an increase of 22.5% over the previous year; realized net profit of 170 million yuan, an increase of 15.6% over the previous year; and net profit after deducting non-return net profit of 160 million yuan, an increase of 18.4% over the previous year. In the third quarter of 2023, the company achieved revenue of 940 million yuan, an increase of 41.4% over the previous year; realized net profit of 80 million yuan, an increase of 28.6% over the previous year; and net profit after deducting non-return mother's net profit of 70 million yuan, an increase of 22.7% over the previous year.

The profitability of Q3 alone increased further month-on-month, and the expense ratio was relatively stable. In the first three quarters of 2023, the company's gross sales profit/net margin was 21.3%/6.7%, +0.7pp/-0.4pp year-on-year; the gross margin/net margin for Q3 alone was 24.5%/8.2%, respectively, +3.4pp/+0.6pp, respectively. The company's digital factories were put into operation one after another and scale effects led to cost reduction and efficiency. Expense side: The company's sales/management (including R&D) /financial expenses for the first three quarters were 2.4%/10.4%/0.4%, respectively, -0.4pp/+0.1pp/+0.9pp, respectively. Among them, the large year-on-year increase in the financial expenses ratio was mainly due to the increase in interest on current loans and the decrease in exchange rate earnings due to exchange rate fluctuations.

The installed capacity of Scenery continues to grow at a high level, and the company's new energy business is expected to continue to grow. According to data from the National Energy Administration, from January to September 2023, China's total installed capacity of photovoltaics reached 128.9 GW, an increase of 145.1% over the previous year, and the cumulative installed capacity of wind power reached 33.5 GW, an increase of 74% over the previous year; in September, 15.78 GW of PV installed capacity was added in a single month, an increase of 94.1% over the previous year. Domestic ground power plant installations are progressing one after another, and demand support is relatively good, driving the growth in demand for grid-connected transformers and inverters in the industrial chain. The company has expanded its business from magnetic components in inverters to box-type substations, and the added value of products has increased, which is expected to benefit from the boom in the industry and its own new customer development drive to drive positive business development.

There is a need to replace transformers in North America, and the company's Mexican base is expected to benefit fully. The US grid market has existed for a long time, and there is a large demand for grid equipment upgrades. In the context of the US restrictions on the import of transformers from China, companies with overseas localized production capacity have a strong advantage. According to the company's announcement on October 30, the company plans to use its own capital or self-raised funds to Eaglerise E&E (USA), Inc., a wholly-owned subsidiary of the company, to invest no more than 86 million US dollars to invest in a new production base in Saltillo, Coahuila, Mexico. The company is expected to further open up overseas business space with the release of production capacity at the Mexican base.

Profit forecasts and investment advice. The company's revenue for 2023-2025 is estimated to be 3.63 billion yuan, 4.72 billion yuan, and 6.05 billion yuan respectively, and the net profit growth rate for the next three years will be 26.1%/49%/33.3%, respectively. The company is an established domestic magnetic components enterprise. The development of products and application fields goes hand in hand. Multiple businesses are expected to bring new performance increases to the company and maintain the “buy” rating.

Risk warning: risk of fluctuations in the macroeconomic situation; risk of structural price and supply of raw materials; risk of exchange rate fluctuations affecting the company's overseas business; risk of downstream demand falling short of expectations; risk of new product development and delivery falling short of expectations; risk of Panama's power penetration rate falling short of expectations; risk of falling short of expectations in developing new customers; risk of falling short of expectations in developing new customers.