Incidents:

The company announced the “Report for the Third Quarter of 2023”.

The share of new energy generation and electric vehicles increased sharply, and the company's revenue in the first three quarters increased year on year.

From January to September 2023, the company achieved revenue of 1,135 billion yuan, +84.69% year-on-year; net profit of 86 million yuan, +39.69% year-on-year. Among them, the industrial control sector accounts for about 40% of revenue; the new energy power generation sector accounts for about 40% of revenue, and the electric vehicle sector accounts for about 20% of revenue.

Looking at a single quarter, 2023Q3 achieved revenue of 371 million yuan, +31.58% year-on-year, -14.37%; net profit of 23 million yuan, -20.56% year-on-year and -27.15% month-on-month.

Q3 gross margin declined slightly month-on-month, and gross margin is expected to increase as production capacity is released one after another. From January to September 2023, the company achieved a gross profit margin of 21.40%, -0.37pct; net profit margin was 7.48%, y-2.47pct. Looking at a single quarter, the gross margin of 2023Q3 was 21.65%, -0.19pct year-on-year and -1.03pct; the company's net profit margin was 6.06%, -4.20pct year-on-year, and -1.22pct month-on-month.

The company has abundant production capacity reserves, and revenue is expected to reach a new level as downstream demand increases. The company has 3 production bases, namely Huashan Plant, Hsinchu Phase 1, and Hsinchu Phase 2. (1) Huashan Plant: The planned production capacity is 4.5 million units/year. It is expected to be fully produced in 2023, with a corresponding output value of around 450 million yuan. (2) Hsinchu Phase 1: The planned production capacity is 4.8 million yuan/year, and currently 3.2 million units/year has been put into operation. The capacity utilization rate is expected to exceed 60% in 2023, all equipment is expected to be invested in 2024, and full production will be achieved in 2025, with a corresponding output value of over 1 billion yuan. (3) Hsinchu Phase 2: The overall plan is over 10 million yuan/year, including 2.4 million yuan/year for its own capital, 2.4 million yuan/year for convertible bond projects, and 5.4 million yuan/year for plastic packaging modules by holding subsidiaries.

Maintain a high level of R&D investment, and gradually enrich new energy and automotive products. From January to September 2023, the company's R&D expenses were 79 million yuan, 89.80% over the same period last year, and the R&D cost rate was 6.93%. In 2023, the company developed 400A/650V three-level customized modules for photovoltaics smoothly, and batch delivery has begun; 800A/750V double-sided cooling modules for vehicles have been developed smoothly, and through relevant automotive reliability tests and system tests, small-batch delivery and use have begun; the smooth development of the 750V 12-inch automotive chip and its corresponding automotive modules are rapidly upgraded; the 12-inch 1700V high-performance free-flow tube and 1700VIGBT chip have been developed and verified.

Profit forecast: We expect the company's net profit for 2023/2024/2025 to be 138/2.68/377 million yuan respectively, corresponding to the PE stock price of November 9, 57/29/21 times, respectively, maintaining the “buy” rating.

Risk warning: New product development falls short of expectations, downstream expansion falls short of expectations, and downstream demand is weak.