3Q24 results were slightly lower than our expectations

Lanxiao Technology announced 3Q24 results: revenue of 0.597 billion yuan, +4.9%/-10.0% month-on-month change; net profit of 0.192 billion yuan, corresponding to earnings per share of 0.38 yuan, a year-on-month change of +11.7%/-18.1%, slightly lower than our expectations. The month-on-month decline in revenue was mainly affected by the company's system equipment business confirmation pace. In terms of profit, in addition to this factor, it was also affected by an increase of 0.017 billion yuan in financial expenses and an increase of 0.02 billion yuan in income tax due to exchange losses in 3Q24. The 3Q24 gross profit margin was 51.2%, and the month-on-month increase continued to increase by 1.8/1.8ppt.

The company achieved revenue of 1.892 billion yuan in 1-3Q24, up 19.99% year on year; net profit to mother of 0.596 billion yuan, up 15.1% year on year; deducted non-net profit of 0.578 billion yuan, up 15.43% year on year; and net cash flow from operating activities of 0.447 billion yuan, up 3.32% year on year.

Development trends

The core business segment grew rapidly, and the company strengthened its overseas layout. The company has maintained a leading position in salt lake lithium extraction and solid phase synthesis carriers for many years with solid technology and leading industrialization capabilities. Recently, the company strengthened its overseas layout in related fields: in terms of lithium extraction, the company's South American R&D center in Argentina plays a “strategic fulcrum” role in international marketing, providing efficient, timely and localized technical services to customers in the “lithium triangle” region; in the field of biotechnology, it has strengthened the layout of a global marketing and technical service network. It continues to expand its localization team in North America and Europe to make up for shortcomings in the international biotech market. Demand for solid phase synthesis carriers for fist products remains strong: according to Lilly's announcement, its tiverpotide 1H24 sales reached 6.656 billion US dollars, an increase of 329% over the previous year. Looking ahead, we believe that overseas market development may become one of the main driving forces for Lan Xiao's long-term growth.

The plan is to build 0.02 million tons of high-end materials production capacity to support medium- to long-term performance growth. In July 2024, the company announced that its wholly-owned subsidiary Pucheng Lanxiao plans to purchase land use rights to build 0.02 million tons of high-end materials production capacity, covering high-value-added adsorption and separation materials such as ultrapure water and food. We believe that the new production capacity construction can meet the needs of high-end application market expansion and support the company's long-term growth.

Profit forecasting and valuation

We maintain our 2024/25 profit forecast of 0.91/1.15 billion yuan. The current stock price corresponds to 31.6/25.0 times the price-earnings ratio for 2024/25, respectively. Due to the upward trend in the market valuation center, we raised our target price by 13.6% to 62.5 yuan, corresponding to a price-earnings ratio of 34.8/27.5 times in 2024/25 and an upward space of 10.2%, maintaining the outperforming industry rating.

risks

Competition in the industry intensified, downstream demand growth fell short of expectations, and the decline in lithium prices led to a slowdown in lithium project construction.