The company announced that in the first three quarters of 2023, the company achieved revenue of 1,769 million yuan/YoY +56.8%, net profit of 26 million yuan/YoY +192.0%, net profit of 26 million yuan/YoY +192.0%, and net profit of 15 million yuan/YoY +132.4% after deducting net profit of 15 million yuan/YoY +132.4%. Considering that the performance of the company's report for the third quarter of 2023 was slightly lower than expected, and that the company's original equipment business failed to achieve the expected progress of improvement, it is difficult to release more profit in the short term. We adjusted the 2023/24 and added 2025 net profit forecast to 0.62/1.24/186 million yuan (the original forecast value for 2023/24 was 302/402 million yuan, respectively). At present, the company has formed a two-wheel drive model for equipment and structural parts, and gross margin is improving quarter by quarter. In the future, the company is expected to continue to improve the quality of operations and return to the path of profit growth. Considering that there is still no obvious inflection point in the recovery of demand in the domestic lithium battery industry, the rebound in the company's performance is uncertain, and no target price will be given yet.

Q3 The company achieved a profit of 2005 million, a significant improvement over the previous month. In the first three quarters of 2023, the company achieved revenue of 1,769 million yuan/YoY +56.8%, net profit of 126 million yuan/YoY +192.0%, net profit of 26 million yuan/YoY +192.0%, and net profit of 15 million yuan/YoY +132.4% after deducting net profit of 15 million yuan/YoY +132.4%. Among them, Q3 achieved revenue of 582 million yuan/YoY -17.4%, net profit of 220 million yuan/YoY +127.8% (up 277.9% over the previous month), and net profit of 20 million yuan/YoY +443.0% after deducting non-return net profit. The company turned a loss into a profit year on year in the first three quarters, mainly due to the merger of the holding subsidiary Fujian Dongheng New Energy (formerly Ningde Dongheng) from 2022Q3. The same period last year included only the holding subsidiary's Q3 performance data.

The company's gross margin continued to improve, and Q3 management expenses increased markedly. In the first three quarters of 2023, the company's gross margin was 24.4% /YOY+4.2pcTS, net profit margin was 1.5% /yoy+3.9pcts, Q3 company gross margin was 25.8% /yoy+4.3pcts, net profit margin was 3.4% /yoy+2.2pcts, and gross margin increased quarterly (2023Q1 and Q2 gross margins were 22.7% and 24.9% respectively). The company's expenses rate for the Q3 period in 2023 was 19.4% /YOY+5.8pcTS. Among them, the sales, management, R&D, and financial expense rates were 1.9% /yoy+0.7pct, 10.6% /yoy+5.9pcts, 4.8% /yoy-1.9pcts, 2.0% /yoy+1.1pcts, respectively. The increase in the cost rate during the period was mainly due to a significant increase in the management cost rate.

The merger and acquisition of Ningde Dongheng opened up new growth space by cutting into lithium battery structural components. According to the company announcement, on July 13, 2022, the company announced the acquisition of 51% of Ningde Dongheng's shares at a consideration of 816 million yuan. In 2021, Ningde Dongheng achieved revenue of 904 million yuan, +118% year-on-year, net profit of 142 million yuan, +130% year-on-year, net profit of 140 million yuan, +133% year-on-year, and promised net profit of no less than 1.5/16/170 million yuan in 2022-2024 (based on the calculation of whether non-recurring profit or loss was lower). In 2022, Fujian Dongheng New Energy (formerly Ningde Dongheng) achieved a non-net profit of 156 million yuan, fulfilling its 2022 performance commitment. Ningde Dongheng is mainly engaged in R&D, design, production and sales of precision metal structural parts for power batteries. It is deeply tied to Ningde Era, a leader in the power battery industry. It provides them with precision power lithium battery structural parts products such as module side panels, module end plates, and module crimping components, which ultimately serve well-known automobile brands such as Mercedes-Benz, BMW, and Tesla. Sales revenue for the Ningde Era reached 93% in 2021. The company's acquisition of Ningde Dongheng to enter the field of lithium battery structural parts is conducive to expanding the business sector, forming a two-wheel drive for lithium battery equipment and structural parts, and opening up new growth space.

Risk factors: Power battery production capacity construction fell short of expectations, the growth rate of the lithium battery industry continued to slow, sales of new energy vehicles fell short of expectations, and the competitive pattern in the industry worsened.

Investment advice: The company is a leading supplier of automation solutions focusing on NEV system integration in China, and is deeply connected to leading battery companies such as downstream Ningde Era. Furthermore, the company's acquisition of Ningde Dongheng into the field of power battery structural parts is expected to form upstream and downstream collaboration with the company's new energy vehicle automation equipment production, further opening up room for growth. Considering that the company's performance for the first three quarters was slightly lower than expected, and that the company's original equipment business failed to achieve the expected progress of improvement, it is difficult to release more profit in the short term. We adjusted the 2023/24 and added 2025 net profit forecast to 0.62/1.24/186 million yuan (the original forecast value for 2023/24 was 302/402 million yuan, respectively). At present, the company has formed a two-wheel drive model for equipment and structural parts, and gross margin is improving quarter by quarter. In the future, the company is expected to continue to improve the quality of operations and return to the path of profit growth. Considering that there is still no obvious inflection point in the recovery of demand in the domestic lithium battery industry, the rebound in the company's performance is uncertain, and no target price will be given yet.