Incidents:

On the evening of October 22, 2024, Best released its report for the third quarter of 2024: in the first three quarters of 2024, the company achieved revenue of 1.04 billion yuan, +3.5% year on year; net profit to mother 0.22 billion yuan, +7.1% year on year; net profit without return to mother 0.21 billion yuan, +22.4% year on year; gross sales margin of 34.9%, +0.4 pct year on year; net sales margin 21.6%, year-on-year +0.6pct.

Among them, 2024Q3's revenue was 0.34 billion yuan, -2.6% month-on-month, -7.6%; net profit to mother was 0.08 billion yuan, +8.9% month-on-month, +1.0% year-on-year; net profit before non-return to mother was 0.07 billion yuan, +9.4% month-on-month, +4.9% year-on-year; gross sales margin 35.1%, +1.0pct month-on-month, -1.3 pct; net sales profit margin 23.5%, month-on-month +2.5pct, year-on-year +1.7pct.

Investment highlights:

The performance was in line with our expectations, and the level of profit increased steadily. In the first three quarters of 2024, the company's revenue and profit maintained relatively steady year-on-year growth, in line with our expectations. On the revenue side, there was a slight year-on-month decline on the revenue side; on the profit side, in a relatively competitive environment in the overall industry, the gross margin level was resilient, and the net margin level continued to improve month-on-month. Entering the third quarter, as the industry gradually enters the peak season, we expect the capacity utilization rate of the company's NEV parts business to increase month-on-month and still maintain the same relatively rapid growth rate.

Strengthen the comprehensive competitiveness of traditional main businesses and consolidate the NEV business layout. The company's first-tier industries include original turbocharger core components, various precision components, and intelligent equipment and tooling. By maintaining the original business of old customers, expanding the new business of old customers, and developing new customers, the company relies on product advantages to increase market share and strengthen traditional business competitiveness. In terms of second-tier industrial layout, the company continues to consolidate the overall layout of the NEV parts business. According to the 2024 three-quarter report, Anhui Best Production Capacity continues to accelerate, while continuously developing new products and developing new customers. In terms of overseas layout, according to the 2024 three-quarter report, the Thai company has successfully laid the foundation and has now officially started construction.

Expand the third level of industrial applications, and successfully introduce screw products in multiple scenarios. The company fully lays out linear rolling functional components and introduced new tracks such as “industrial mother machines”, “humanoid robots”, and “automobile drives”. In terms of industrial mother machines, after high-precision screw pairs and guide rail pairs were successfully applied by well-known domestic machine tool manufacturers in the second quarter, batch rolling delivery orders were signed with well-known machine tool manufacturers in the third quarter. Among them, C0 grade screw pairs representing the highest manufacturing level of ball screw pairs achieved a breakthrough and received the first batch of orders from customers. Ball screw pairs used in NEV EMB braking systems have also completed their first customer delivery. The planetary roller screw process, the core component of the linear actuator of humanoid robots, has been continuously optimized, the batch production process layout has been continuously improved, and the cooperative development of localized equipment required for key processes is progressing in an orderly manner to continuously build an efficient core manufacturing capacity, and technical and equipment reserves have been prepared for next year's batch supply.

Profit forecast and investment rating: The company's turbocharger parts business is growing steadily. We expect to maintain steady growth. The increase in revenue for new energy vehicle parts in the medium to short term will form a second growth curve. In the future, products such as screws are expected to fully benefit from the increase in demand in high-end machine tools, automobile transmission (line control, wire control steering), automation industry, humanoid robots, etc., bringing long-term growth momentum. We adjust the company's profit forecast. We expect the company to achieve revenue of 14.4, 17.3 and 2.13 billion yuan respectively in 2024-2026 Net profit of 3.2, 3.7, and 450 million yuan was achieved, respectively. The current stock price corresponds to PE of 28X, 24X, and 20X, maintaining a “buy” rating.

Risk warning: risk of cycle fluctuations in the automotive industry; risk of worsening competition in the turbocharger parts industry; risk of new energy transformation falling short of expectations; delivery of core components of industrial engines and robots falling short of expectations; failure to execute company orders; risk of exchange rate changes.