Description of the event

The company released its 2024 three-quarter report: the company achieved revenue of 0.842 billion in the first three quarters, an increase of 14.6%; realized net profit of 0.129 billion, an increase of 33.2%; and realized net profit of 0.127 billion yuan without return to mother, an increase of 34.4%.

Equivalent to Q3, we achieved revenue of 0.287 billion yuan, an increase of 3.0%; realized net profit of 0.038 billion, a decrease of 12.5%; and realized net profit without deduction of 0.037 billion yuan, a decrease of 13.0%.

Incident comments

Revenue growth in the first three quarters of 2024 surpassed industry levels, and profits increased slightly. From January to September 2024, sales in the automobile industry were steady, moderate and positive. Automobile sales increased 2.4% year on year, and the company's revenue increased 14.6% year on year. Thanks to the excellent performance of the company's core customers such as Geely and Chery, new energy vehicle projects continued to be put into production, and frameless seal models such as ZEEKR 007 and Zhijie S7 entered mass production, driving the company's frameless products to continue to be released. In terms of profitability, the gross margin increased 1.4 pcts to 30.4% year over year, benefiting from increased revenue growth and continued release of new projects; the cost ratio decreased slightly by 0.3 pcts to 13.3% during the period, with management fees falling 0.6 pcts; other income increased 1.74 million due to input tax deductions; asset impairment losses decreased by 2.75 million year on year; and ultimately realized net interest rate of 15.4%, up 2.1 pcts year over year.

Growth slowed in the 3rd quarter. The Q3 revenue growth rate declined significantly. On the one hand, industry demand growth slowed, and on the other hand, it may be affected by the company's revenue recognition pace. Furthermore, the revenue base was relatively high during the same period, and the company's revenue also increased by 3.0%. In terms of profitability, gross margin decreased by 2.0 pcts to 28.9% in Q3; the cost ratio increased by 2.3 pcts during the period, with sales, management, and finance rates falling 1.5, 0.3, and 0.6 pcts. Expenses and gross margins increased or were mainly affected by the pace of revenue recognition; ultimately, the net profit margin was 13.2%, down 2.3 pcts from the previous year.

The cost advantage is outstanding, and the profit margin is leading in the industry. In the case of high raw materials, the overall profit of the industry was under pressure, and some companies fell into losses, but the company still achieved a good level of profit, mainly due to cost advantages: 1) Self-made molds. The homemade rate of the company's tooling molds has reached more than 90%, saving equipment costs compared with outsourced processing methods; 2) Strict yield assessment.

Relying on a strict assessment system and incentive mechanism, the company's yield rate is over 95%; 3) Labor advantage. The labor cost in Xianju County, where the company is located, is low, and the manpower advantage is obvious as a labor-intensive industry; 4) Formulation accumulation. The company's homemade ratio of raw materials is more than 95%. The homemade formulation experience makes the rubber content of single-meter seals relatively low, reducing costs.

Customers continue to break through and fully benefit from borderless volume. In 2018, the company began customer restructuring and increased the development of high-quality customers. Currently, the top 9 passenger car manufacturers in the country are all company customers. Among them, independent brands such as Geely, Changan, and Chery account for a relatively high proportion. In the past two years, the company has also achieved breakthroughs in joint venture brands such as Volkswagen, and has gradually entered a sales period. Furthermore, the company is currently the only domestic enterprise that has achieved batch support for frameless seals. It is expected to fully benefit from the expansion of frameless models and achieve an increase in market share and profit margins. The company increased its efforts to acquire new projects in the first half of this year. The total number of projects received exceeded 120% of the projects it undertook last year, the vast majority of which are NEV projects.

Investment advice: Looking ahead, the company's customer structure continues to be optimized, and new customer breakthroughs are expected to bring new growth; if raw materials gradually decline at a high level, it is expected to contribute additional performance flexibility. Net profit attributable to 2024 and 2025 is estimated to be about 0.19 or 0.25 billion, corresponding PE 19 or 15 times.

Risk warning

1. Raw materials continue to rise sharply;

2. Automobile sales continue to be under pressure.