Event: On October 26, 2023, Macro Technology released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 1,135 million yuan, a year-on-year increase of 84.69%, a year-on-year increase of 84.69%, a year-on-year increase of 39.69%; 2023Q3 achieved operating income of 371 million yuan, a year-on-year increase of 31.58%, a year-on-year decrease of 14.37%, a year-on-year decrease of 14.37%, net profit of 21.65%, a year-on-year decrease of 20.56%, a year-on-year decrease of 27.15%, and gross margin of 21.65%, a year-on-year decrease of 0.19pcts, a year-on-year decrease of 1.03 pcts.

2023Q3 revenue maintained a year-on-year growth trend, with a slight decrease month-on-month, and gross margin under slight pressure. The month-on-month decline in 2023Q3 revenue was mainly due to the slowdown in demand from photovoltaic customers. The decline in gross margin was mainly due to the company's declining production capacity, large upfront investment, and high cost amortization expenses.

The structure of downstream application areas has been adjusted, and the share of the NEV business has increased. Looking at the 2023Q3 revenue structure, 1) the industrial control sector accounts for about 40%, and the development is relatively stable; 2) the new energy power generation sector accounts for about 30%, the share has declined slightly, mainly due to the fact that photovoltaic inverters are in the inventory removal stage, and demand for single-tube products is slightly weak, while energy storage modules are expected to account for more than 30% of the revenue in the new energy sector in 2024; 3) the electric vehicle sector accounts for about 30%. The NEV business is expanding, and the company's vehicle regulation orders are expected to exceed 80,000/month by the end of this year.

Increase technology accumulation and actively deploy new energy and SiC products. At present, the company's 200A650V and 600A1200V energy storage modules have completed verification tests and will be delivered to customers on a large scale. In terms of SiC products, SIC diodes have been verified on the client side, and SiC MOS has achieved sample production. The finished product is expected to be delivered to customers in 2024Q1.

Production capacity construction continues to advance, and customer orders are superimposed to protect the company's development. The company's production capacity is distributed in three bases, of which the Huashan Plant has a production capacity of 4.5 million units/year, and is expected to be fully produced in 2023; Hsinchu Plant Phase 1 has now adjusted its production capacity to 4.8 million units/year, and has already put into operation 3.2 million units/year. The Hsinchu Plant Phase 2 is expected to exceed 60% in 2023 and achieve full production in 2025; the overall plan for Hsinchu Plant Phase 2 exceeds 10 million units/year, of which 2.4 million units/year is invested in convertible bond projects, and holding subsidiaries invest 5.4 million blocks/year in plastic packaging modules. The above production capacity can meet future customer needs and ensure the long-term development of the company. On August 22, the company announced that it signed a major contract for daily operations with customer A. The contract is a capacity guarantee agreement. It is agreed that 200/240/2.4 million blocks will be delivered to customer A in June 2024, June 2025, and June 2026. The actual production capacity of the product as initially agreed has reached 100,000 yuan/month. Currently, it is on a climbing trend and has not yet reached 200,000 yuan/month. Customer A is a high-quality customer, and this order will provide performance growth points for the company's future development.

Investment suggestions: Due to the company's current revenue growth rate, we adjusted our 2023-2025 revenue forecasts to 15.85, 24.57, and 3.440 billion yuan (original forecasts were 17.84, 27.02, and 3.857 billion yuan respectively). The estimated EPS is 0.88/1.37/2.21 yuan, and the PE corresponding to the current market value is 58.87/37.96/23.52, respectively. We maintain the “buy” rating.

Risk warning: production capacity expansion falls short of expectations; upstream foundries continue to rise in prices; industry cycles affect price declines.