Incidents:

Huayang Group released a performance forecast for the first three quarters of 2024:2024Q3 expects to achieve net profit of 0.163-0.188 billion yuan, +40.86%-62.45% year over year; net profit without return to mother is 0.158-0.183 billion yuan, or +41.84%-64.34% year over year.

Opinions:

The median performance growth rate of the 2024Q3 reached 51.65%, and the volume and scale effects of supporting models boosted performance. Based on the median calculation, the company achieved net profit of 0.176 billion yuan in 2024Q3, +51.65% over the same period. There are two main reasons: First, sales of supporting models increased rapidly, which led to a rapid year-on-year increase in revenue. Core customers such as Cyrus, Geely, Chery, and Xiaomi continued to grow in Q3 sales. Models such as the Q3 M7 (Q3 sold 0.044 million units), the Q3 M9 (Q3 sold 0.049 million units), and ZEEKR 001 (Q3 sold 0.025 million units) performed well; second, as shipments increased, the scale effect of cost reduction became prominent, leading to an increase in net interest rates.

Core customer order performance is good, and we are optimistic that 2024Q4 performance will continue to increase. Looking ahead to 2024Q4, the company's performance is expected to continue at a high growth rate. On the one hand, key models from core customers are being intensively launched, which is expected to drive continued growth in the company's performance, supported by new orders. In terms of models already on the market, Hongmeng Zhixing added more than 0.028 million new orders during the National Day; in terms of new cars, the Avita 07 accumulated more than 0.025 million units in 17 days; the Xiaopeng MONA M03 sold more than 0.03 million units within 48 hours; the number of new orders added per day exceeded 2,000 units; and the Xiaopeng P7+ pre-sale order broke 0.03 million units in less than 2 hours. On the other hand, the scale effect of increased supporting sales is expected to further reduce costs, dilute expenses, and release profit margins.

Order development and production capacity implementation are expected to continue to support the company's growth. In terms of orders, the company's automotive electronics business has made remarkable progress in developing orders. According to the company's 2024 mid-year report, products such as cockpit domain control and HUD continue to gain new targets, developing new customers such as Stellantis and Changan Mazda. In terms of production capacity, the new plant for the automotive electronics business was put into operation in July 2024. The first phase of the precision die-casting parts production base is expected to be put into operation within 2024. The overseas production base has made new progress, and it has cooperated with Japanese companies to set up overseas production sites.

Profit forecast and investment rating: The company's project development is progressing significantly, and new products such as cockpit domain control are gradually being rolled out. We expect the company's net profit to be 0.65/0.848/1.074 billion yuan respectively in 2024-2026. The current stock price corresponds to PE 23.6/18.1/14.3 times, and the average value of the comparable company's PE is 29.4/22.7/18.1 times. Huayang Group's valuation is lower than the average valuation of comparable companies. The first coverage gave a “gain” rating.

Risk warning: The macroeconomy falls short of expectations; new fixed points fall short of expectations; sales of supporting models fall short of expectations; prices of upstream raw materials have increased; there is an error in the calculation, which is subject to reality.