Event: The company released its 2023 three-quarter report. In the third quarter of 2023, the company achieved revenue of 150 million yuan, down 25.8% from the previous year, down 6.4% year on year, and realized net profit of 25 million yuan, down 54.6% month on month and 31.6% year on year.

2023Q3 revenue and profit declined month-on-month, and gross margin increased 1.7pct month-on-month in a single quarter. 2023Q1-3, the company recorded a total revenue of 507 million yuan, an increase of 8.32% over the previous year, a total net profit of 117 million yuan, an increase of 14.68% over the previous year, and a total net profit of 109 million yuan after deducting non-return mother, an increase of 28.54% over the previous year. Overall, the financial performance of 2023Q1-3 was impressive. The company's revenue and profit declined month-on-month in the third quarter alone, mainly due to fluctuations in the pace of settlement between quarters. In particular, the company's share of overseas revenue increased in 2023. Delays in customs clearance will also affect current revenue.

As of 2023Q3, the company recorded a total contract debt of 315 million yuan, an increase of 4.1% over the previous year, and revenue growth is certain. Since 2023, the company's overseas orders have increased significantly. According to the company's 2023 semi-annual report data, overseas gross margin is 17 pct higher than domestic gross profit margin, and 2023Q1-3 has recorded a gross profit margin of 44.5%, an increase of 4.1 pct over the previous year. It should be pointed out that the gross margin of the company's various products is at a high level compared to peers, mainly because there are few domestic competitors, and the company's own R&D capabilities are strong, so it can continue to adapt to the customized needs of downstream customers as the product cycle changes. It is expected that under the company's overseas orders drop, its gross margin will still be on an upward channel.

Traditional products are growing steadily, and the competition pattern for new products is excellent. The company's core products include 1) traditional heat exchangers. The downstream products are mainly household air conditioners, and customers include Denso, Daikin, Panasonic, Hitachi, Mahler, Valeo, and domestic Gree, Midea, Oaks, etc.; 2) Microchannel heat exchangers, which accelerated penetration in automobiles in 2023 and became a flashpoint for the growth of heat exchangers. Customers are mainly GM and Mahler, and currently there are significant breakthroughs in independent brands; 3) Precision presses, which have accelerated production since the end of the year, including new downstream applications Electric vehicle motor cores, battery structural parts, etc. Overall, the competitive advantage of the company's precision presses and microchannel equipment is obvious. Its downstream applications are mainly stamping parts and sheet parts for new energy vehicles. Under the general trend of domestic OEMs and Tier 1 overseas factories, the company has placed overseas orders with its good compatibility and product advantages. It should be pointed out that the company's overall orders are growing steadily, and it is expected that the revenue side will solidify and pick up in 2023Q4.

Overseas order growth is highly sustainable, and downstream application scenarios for core products are rich. The company relies on its unique competitiveness to harvest overseas orders on the new energy circuit to make up for the lack of growth in the domestic new energy growth rate. Affected by global decoupling, there is strong demand for equipment repair and replacement in overseas factories. Considering that OEMs and Tier 1 are cautious about purchasing additional equipment for overseas factories, the company's overseas orders can be expected to grow over a long period of time. In addition, there are still many downstream application scenarios for the company's core equipment to be released. For example, the company has received orders for 4680 large cylindrical mass production lines, and orders for precision presses are expected to be further increased.

Investment suggestions: The company's net profit from 2023-2025 is estimated to be 1.77/250 /320 million yuan, EPS is 0.40/0.57/0.73 yuan, respectively, and the price-earnings ratio is 19.26/13.63/10.66 times, respectively, covering the first time, giving it a “buy” rating.

Risk warning: Market competition is intensifying, and the pace of overseas order volume falls short of expectations