3Q24 results fall short of market expectations

The company's 1-3Q24 revenue/net profit deducted from non-net profit 13.021/0.255/0.211 billion yuan, YoY +10.9%/-46.7%/-45.3%; of these, 3Q24 revenue/net profit/net non-net profit 4.482/0.049/0.036 billion yuan, YoY -0.5%/-75.0%/-78.6%, month-on-month -5.4%/-64.6%/-70.8%; we think the company's 3Q24 performance was lower than market expectations, mainly due to cable Downstream infrastructure, real estate, and engineering investments are weak, and profits from the company's core business cables and polymer materials are under pressure.

Development trends

The core business was affected by weakening downstream prosperity, and profits were under pressure, but the company's market position continued to strengthen.

60-70% of the company's downstream power cables come from investment in government infrastructure, new energy plants, real estate, and engineering projects. The 3Q24 downstream investment boom weakened, and the company adopted a certain price strategy to consolidate its market position. We estimate that power cable revenue and delivery volume are close to double-digit year-on-year growth, but profits are under pressure. Low-voltage insulation materials and sheathing products in the polymer materials business are strongly correlated with power cable demand. Affected by the downturn in the downstream cycle, the company also adopted a price strategy to guarantee a stable market position, leading to a decline in profits. However, downstream high-voltage insulation products are mainly countercyclical industries such as power grids, sea breezes, etc., and it is a price market agreed by foreign manufacturers. We estimate that the profit of high voltage insulation materials will be less affected. Looking ahead, with the gradual implementation of the 4Q24 fiscal policy, we expect demand for downstream cables to pick up, and the fundamentals of the company's core business power cables and polymer materials are expected to improve.

The charging business maintained steady growth, and profits and losses continued to decline. The company's 3Q24 charging capacity was 0.271 billion degrees, +23% year over year, adding 0.06 million kilowatts of power, up 50% year on year; on the profit side, we estimate that 3Q24 may maintain year-on-year loss reduction, mainly benefiting from the increase in pile sales scale.

Cash flow improved markedly year over year, with sufficient funds on hand. The company's 3Q24 operating net cash flow was +0.753 billion yuan year-on-year, with a significant improvement. The main reason was that the company optimized payment methods and increased bill payments during procurement. As of 3Q24, the company's monetary capital was 2.453 billion yuan, net cash after deducting liabilities was 2.087 billion yuan, and the funds on hand were sufficient.

Profit forecasting and valuation

Considering the pressure on the cable and polymer business operations, we lowered the company's 2024/2025 profit forecast to 40.8%/29.2% to 0.333/0.52 billion yuan; we are optimistic that fiscal policy will strengthen in 25, the recovery in downstream demand will drive the company's fundamentals repair, superimpose a recovery in market valuation, maintain a target price of 9.20 yuan, and maintain a superior industry rating. The current stock price and target price correspond to 21.9x/14.0x P/E and 27.9x/18.0x P/E in 2024/2025, respectively. 28.3% upside.

risks

The macroeconomic economy is declining, the number of new energy vehicles has fallen short of expectations, and the progress of going overseas has fallen short of expectations.