Introduction to this report:

Performance is in line with expectations. Consumer goods trade-in is being promoted vigorously, and the company's Baidian and Auto Zero businesses are expected to fully benefit; in addition, the company will expand its second growth pole through the acquisition of Auto Zero assets.

Key points of investment:

Maintain an increase in holdings rating: Maintain the 24-26 EPS at 1.04/1.30/1.51 yuan, and keep the target price unchanged at 16.35 yuan. Maintain an “Overweight” rating.

The performance was in line with expectations. The company achieved revenue of 2.787 billion yuan/ +18.45% in 24Q1-Q3, net profit of 0.341 billion yuan/ +21.18%; deducted from non-return mother 0.305 billion yuan/ +22.60%. 24Q3 achieved revenue of 0.857 billion yuan/YoY +4.75% /-13.29%, net profit to mother 0.11 billion yuan/YoY +4.82%/-12.15% month-on-month; minus 0.097 billion yuan/YoY +4.44%/-17.43% month-on-month. The month-on-month decline in 24Q3 revenue was mainly due to seasonal (low season for white power production) combined with the delivery pace. The company's inventory at the end of 24Q3 was 0.706 billion yuan, up 17.7% from the end of 24Q2.

Affected by changes in preferential policies for electricity charges, the 24Q1-Q3 gross margin was 22.17% /year over year - 2.55pct; the corresponding net margin was 11.70%/+0.34% year over year, mainly due to factors such as the company's cost reduction in place, the increase in the share of white electricity, and additional VAT deductions. Specifically, 24Q1-Q3's sales/management/R&D expenses rate was 1.15%/3.60%/4.38%, respectively, +0.16pct/-1.50pct/+1.47pct. The large decline in the company's management expense ratio is mainly due to a reduction in share payment fees and the inclusion of depreciation and amortization expenses for production line discontinuation into sales costs. In addition, 24Q1-Q3's other revenue was 48 million/ an increase of 31 million over the same period last year, mainly due to the fact that the VAT plus deduction subsidy 24H1 received a lot.

Consumer goods trade-in is being promoted vigorously, and the company's white power and auto parts businesses are expected to fully benefit.

In July 2024, the National Development and Reform Commission and the Ministry of Finance issued “Certain Measures to Strengthen Support for Large-scale Equipment Renewal and Consumer Goods Trade-in” (hereinafter referred to as the Measure Document). The document indicates that about 300 billion yuan of ultra-long-term special treasury bond funds will be allocated. The strength and scope of subsidies for white electricity and automobiles under this document have been expanded, and the subsidy requirements will be used up by the end of 24. The strengthening of the trade-in policy is expected to stimulate demand for terminal white power and automotive products. It is expected to drive the company's 24Q4 white power and auto parts business production schedule, making a positive contribution to performance.

Based on the Baidian business, the acquisition of Auto Zero Assets expanded the second growth pole. Baidian is actively developing finishing processes. Construction machinery companies are stepping up overseas customer development efforts to improve capacity utilization. In the auto parts sector, in September 2024, the company plans to increase foundry production capacity, extend machining processes, and deepen cooperation with Huayu Automobile through a joint venture acquisition of Sandman Shanxi. Through the acquisition of auto zero assets, it is expected to increase market share and accelerate the development of the auto parts sector through large-scale cost reduction.

Risk warning: Policy implementation falls short of expectations, and air conditioning schedules and expansion in new fields fall short of expectations.