Results of the three-quarter report: The first three quarters of 23 years achieved revenue of 269 million yuan, yoy -21.9%; net profit of 59 million yuan, yoy -25.4%; net profit of 59 million yuan, yoy -25.4%; net profit of 54 million yuan, yoy -20.4%. Among them, Q3 achieved revenue of 89 million yuan, yoy -20.5%, -11.5% month-on-month; net profit of 0.21 million yuan, yoy -8.6%, -1.8% month-on-month; and net profit of 0.2 billion yuan, yoy +4.7%, +6.7% month-on-month.

Profitability improved month-on-month, just wait for the amount of iron powder to be raised

In terms of revenue, the first three quarters of 23 years achieved revenue of 269 million yuan, YOY -21.9%. We believe it was mainly due to the pressure on consumer electronics demand in the first half of the year; Q3 achieved revenue of 89 million yuan in a single quarter, -11.5% over the previous year, mainly due to the company's optimization of the product structure and reduction of the low gross margin common flour business. Looking ahead to Q4, it is expected that fund-raising iron powder will contribute to the increase, compounded by increasing the volume of products such as powder for folding screens. We believe that Q4 is expected to usher in a trend of improving both revenue and performance from next year.

In terms of profit, 23Q3 gross profit margin was 43.4%, +6.02pct month-on-month; net profit margin 23.3%, +2.15 pct month-on-month.

The company explores new material products with high added value, such as high-strength steel, etc., and its profitability continues to improve. We are still waiting for the scale effect of iron powder investment to climb the slope, which is expected to further boost profitability.

With a 23-year production capacity planting period, performance is expected to accelerate from '24

Fundraising project: The company's IPO fund-raising project has reached the intended state of use at the end of the third quarter of this year. Regardless of new projects, the production capacity of carbonyl iron powder after delivery will be doubled from 5,500 tons to 11,500 tons; at the same time, the production capacity of high-performance powders has been increased by 4,000 tons, including 2,000 tons of soft magnetic powder for powder cores, and production capacity is now gradually being released according to market demand. The fund-raising project is about to be put into operation, helping the company break through capacity bottlenecks and focus on optimizing the product structure at the middle and high-end. The scale effect will also be prominent, and will continue to drive performance growth.

The 10wt new process project at the Ningxia base: The new process of carbonyl iron powder is expected to increase production capacity by 100,000 tons, a new phase of demonstration verification capacity of 30,000 tons in 2024-2025, and the cumulative additional production capacity in 2026-2029 is expected to correspond to 13,3,60,000 tons; the project is expected to achieve annual sales revenue of 3.423 billion yuan and net profit of about 593 million yuan, opening up room for long-term growth.

Investment suggestions: As a leader in carbonyl iron powder, the company's new business development, new product research, new process expansion, and new production capacity release, the estimated net profit for 2023-2025 is 1.02/1.61/208 billion yuan respectively (23/24/25 previous value was 1.24/1.82/241 million yuan, considering the recovery in the consumer electronics industry, the company's related products are under pressure, and the profit forecast was slightly lowered), corresponding to the current stock price of 35/22/17 times, maintaining the “buy” rating.

Risk warning: risk of demand fluctuations; risk of new project construction falling short of expectations; risk of raw material fluctuations; risk of process technology innovation; risk of new business development falling short of expectations