Incident: The company released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 930 million yuan, an increase of 1.9% year on year; net profit to mother of 170 million yuan, an increase of 0.2% year on year. Looking at the Q3 single quarter, we achieved operating income of 350 million yuan, up 13.8% year on year, up 12.5% month on month; realized net profit of 63 million yuan, up 14.3% year on year and 68.6% month on month.

3C demand picked up, Q3 performance increased significantly month-on-month, and gross margin increased month-on-month. In the first half of 2023, demand in the 3C industry was weak. As its upstream consumables, sales of the company's main product, PCB drills, were weak. Since the 3rd quarter, 3C demand has gradually picked up, the company's capacity utilization rate has increased markedly, and performance has improved markedly from month to month. In the first three quarters of 2023, the company's comprehensive gross margin was 37.7%, a year-on-year decrease of 0.6 percentage points; the Q3 single quarter was 40.2%, up 2.3 percentage points year-on-year, and 6.5 percentage points month-on-month. The sharp increase in the company's Q3 gross margin was mainly due to an increase in capacity utilization and a slowdown in industry competition.

The fee rate increased slightly during the period, and the Q3 net interest rate increased significantly from month to month. In the first three quarters of 2023, the company's expenses rate for the period was 19.3%, up 1.7 percentage points year on year; Q3 single quarter was 18.0%, up 1.5 percentage points year on year and 2.8 percentage points lower than month on month. In the first three quarters of 2023, the company's net interest rate was 18.3%, down 0.3 percentage points year on year; Q3 single quarter was 18.4%, up 0.1 percentage points year on year, up 6.2 percentage points from month to month.

The company is a global leader in PCB tools, focusing on CNC tools. The company is a global leader in PCB drills, with a global sales share of 19% in 2020. It has obtained cost advantages and flexible production expansion advantages through self-made front-end production equipment. It has developed an integrated layout of an intelligent back-end drill storage system, and its core competitiveness is constantly increasing. PCB tools are consumables for PCB manufacturing. Driven by advanced 5G, AI, and intelligent driving technology, the demand and share of high-performance PCBs will continue to increase, driving the volume and price of PCB tools to rise sharply. The company's multi-track layout actively explores the company's second growth curve. 1) Focus on expanding CNC tool production capacity: The company made its own CNC tool production equipment and used fund-raising funds to build a new production capacity of 9.6 million CNC tools in preparation for the broad incremental demand for CNC tools brought by the introduction of titanium alloy into the consumer electronics industry. 2) Focus on developing functional film products: Mobile phone privacy films have been shipped in large quantities, and future film products will become a new growth point for the company.

Profit forecasting and investment advice. The company's net profit for 2023-2025 is estimated to be 2.4, 2.9 billion yuan, and 370 million yuan respectively. The compound net profit growth rate for the next three years is 18%, which is covered for the first time with a “holding” rating.

Risk warning: the risk of falling 3C demand, price fluctuations and supply risks of raw materials, and the risk of increased market competition.