3Q24 results are in line with our expectations

The company announced 1-3Q24 results: 1-3Q24 achieved revenue of 10.129 billion yuan, a year-on-year increase of 7.9%; net profit to mother was 1.426 billion yuan, corresponding to profit of 1.36 yuan per share, an increase of 124.21% over the previous year. Among them, 3Q24 achieved revenue of 3.774 billion yuan, a year-on-year increase of 14.34%, and net profit to mother of 0.201 billion yuan, or -2.32% year-on-year. Thanks to the recovery in equipment business demand in the downstream information industry and other reasons, the company's 3Q24 performance was in line with our expectations.

In terms of profit: 1-3Q24's gross profit margin was 33.5%, year-on-year -1.6ppt; 3Q24 gross profit margin 35.23%, year-on-year -2.83ppt, month-on-month +1.16ppt. In terms of costs, the company continuously optimizes the cost structure, reduces costs and increases efficiency, while increasing R&D to enable growth. The 3Q24 company's sales expense rate/management expense rate/R&D expense rate/financial expense ratio was 8.88%/8.00%/12.4%/1.31%, -2.19pp/+0.46pp/ -0.1pp/ -0.03ppt. The company's 1-3Q investment income was 1.042 billion yuan, an increase of 459% over the previous year. The main reason was that 1Q24 sold Dazusite shares to confirm the share transfer.

Development trends

By industry: 1) Information industry equipment: The AI computing power industry chain continues to develop, and downstream demand is gradually recovering. We believe that the development of the AI computing power industry chain will increase the demand for the number of layers of PCBs and further increase the equipment efficiency and process requirements for PCB manufacturers. Looking ahead, the expansion of PCB production in Southeast Asia and the AI computing power industry chain are expected to drive incremental demand for high-end PCB processing equipment. 2) New energy equipment: Affected by the decline in capital expenditure of downstream photovoltaic lithium battery customers, we believe that the new energy equipment business will decline significantly. We judge that the company will continue to cooperate with mainstream customers in the lithium battery industry to participate in the overseas process of major customers. 3) Semiconductor equipment: As the boom in the semiconductor and pan-semiconductor industry recovers, we believe that orders for semiconductor and pan-semiconductor equipment are expected to continue to grow; 4) General industrial laser processing equipment: Looking ahead, we believe that the 150KW ultra-high power cutting machine launched by the company is expected to continue to expand its influence in the high-end sector.

Profit forecasting and valuation

We keep the company's profit forecast for 2024 and 2025 basically unchanged. The current stock price corresponds to a price-earnings ratio of 14.6 times/22.3 times for 2024/25. Considering the demand for consumer electronics innovation and the expectation of a steady recovery in the domestic manufacturing industry, we have maintained an outperforming industry rating and raised our target price by 22% to 28.00 yuan, which corresponds to a price-earnings ratio of 16.9 times/25.8 times in 2024/25. There is room for an increase of 15.8% compared to the current stock price.

risks

Downstream demand falls short of expectations; the expansion of the new energy sector falls short of expectations; PCB prosperity falls short of expectations.