Incidents:

The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 3.236 billion yuan, a year-on-year increase of 12.25%, and net profit to mother of 0.366 billion yuan, an increase of 274% year-on-year, after deducting non-return net profit of 0.24 billion yuan, an increase of 226.42% year-on-year. Among them, the third quarter of 2024 achieved revenue of 1.134 billion yuan, a year-on-year increase of 6.31%, net profit to mother of 0.118 billion yuan, a year-on-year increase of 256.62%, and net profit after deducting non-return to mother of 0.081 billion yuan, an increase of 130.51% year-on-year.

Revenue remained stable, and performance continued to increase. On the revenue side, HDM achieved a year-on-year increase in revenue of about 8%, gross profit margin of 36.6%, interior and exterior parts achieved a slight year-on-year increase of 0.336 billion yuan, gross margin of about 18%, wheel bearing revenue of 9% year-on-year to 0.322 billion yuan, gross profit margin 19.6%, and new energy motors achieved revenue of 0.12 billion yuan and gross profit margin of 13.4%. On the performance side, the performance growth rate continued to be faster than revenue, mainly due to the optimization of the company's product structure, significant cost reduction and efficiency of new energy sources, and continued optimization. The company's 24Q3 gross margin was 21.27%, up 3.29pct year on year, mainly due to improved profitability of new energy motors. The net interest rate was 10.43%, up 7.28 pct year on year, mainly due to the decline in the cost ratio during the period, especially the decline in R&D expenses rate and financial expense ratio, which fell 0.19/0.51 pct to 4.10%/0.62% year on year, respectively.

Accelerate overseas expansion. The company invested in the new Torch Thailand plant to begin overseas expansion. At present, 3 high-end wheel bearing production lines have been laid out to achieve localized production throughout the entire process. Small-scale production will begin in May 2024. In the future, overseas factories are expected to help the company deploy wheel bearing products in international markets such as North America, Europe and Southeast Asia.

By actively arranging roller screws, growth potential can be expected. With the continuous development of the humanoid robot industry, roller screw products have ushered in unprecedented development opportunities. Relying on the homology of HDM and planetary roller screw products in terms of technology development and compatibility in production processes such as threading and gear processing, the company entered the robotic planetary roller screw field in a big way. Samples of the company's roller screw products have been developed during the reporting period, and a trial production line is also under construction. We believe that based on the company's technical advantages in planetary roller screws, during the 0-1 launch of the humanoid robot industry wave, the company is expected to achieve card position advantages, take the lead in enjoying the industry's explosion dividends, and open up the growth ceiling.

Profit forecast: Benefiting from the explosion of the humanoid robot industry, based on the positive layout of the screw project, the company is expected to blossom more, and revenue and profit will further increase. We expect the company to achieve net profit of 4.38/ 4.26/ 0.502 billion yuan in 2024-2026, corresponding PE 20/ 21/ 18 times. The 2025 profit was estimated at 30 times PE, and the target price was 31.9 yuan. It was covered for the first time, and a “buy” rating was given.

Risk warning: Downstream demand falls short of expectations, profit forecasts and valuation judgments fall short of expectations.