Incident: On October 22, 2024, the company released its 2024 three-quarter report: In the 2024Q3 single quarter, the company achieved revenue of 0.234 billion yuan, an increase of 20.37% year on year; realized net profit to mother of 28.2543 million yuan, an increase of 29.87% year on year; realized deducted non-net profit of 23.7718 million yuan, an increase of 9.55% year on year. In the first three quarters of 2024, the company achieved revenue of 0.747 billion yuan, up 18.5% year on year; net profit to mother of 96.1365 million yuan, up 18.12% year on year; after deducting non-net profit of 74.1378 million yuan, a decrease of 1.97% year on year.

Continuous cast ductile iron has excellent performance, and the company already has a unique competitive advantage. ① Continuous cast ductile iron has low cost, low weight, low temperature rise, excellent wear reduction performance, and good cutting performance, so it has broad replacement space in various fields such as downstream air pressure, hydraulic power, wind power, automotive parts, agricultural machinery, vacuum pumps, heavy CNC lathes, and shipbuilding. ② The continuous cast iron production line owned by the company is independently developed, designed, and manufactured. There is no similar equipment supply in the market. Through long-term accumulation, the company has mastered five core process technologies, including ratio of raw materials, addition of trace elements, control of supercooling, structural design of graphite sleeves, and control of drawing speed and rhythm. Compared with the same industry, it has formed a unique competitive advantage and further strengthened technical barriers.

The company's “two-wheel drive” model continues to advance, and the customer structure is high-end. ① The company has formed two core competitive advantages of “high-quality continuous cast iron materials” and “one-stop service capability”, and the two advantages are synergetic to form a “two-wheel drive” model. On the material side, through the positive promotion of high-quality continuous cast iron, the overall cost of the processing side is effectively reduced; on the processing side, continuous cast iron is driven in reverse into more application fields, achieving high product performance and high customer viscosity, and collaboratively promoting the steady growth of the company's performance and continuous improvement in profitability. ② The company's customer structure is high-end. The company's customers include well-known domestic and foreign customers in the fields of air pressure, hydraulics, transmission, etc., such as Hanzhong Precision Machinery, East Asia Machinery, Atlas Copco, etc. in the field of air compression, and Haitian Group in the hydraulic field.

The company has been supplying robot reducer products in small quantities and is gradually increasing the quantity. The company's robot products mainly include RV reducer core components (planetary frame, planetary frame cover, cycloid wheel, needle tooth shell, eccentric shaft, etc.), harmonic reducer core components (mainly rigid wheels), etc.; the core components of RV reducers have been supplied in small quantities, and are now gradually being released.

Maintaining a “buy” rating: According to the business split and profit forecasting models, we expect the company's operating income in 2024-2026 to be 1.009/1.305/1.521 billion yuan, net profit to mother of 0.154/0.183/0.213 billion yuan, respectively. The PE corresponding to the current stock price is 22.6/19.0/16.4 times, respectively. The company's growth is driven by technology. We are optimistic that the company will accelerate the release of performance in the future, driven by the continuous cast iron, precision machined parts, and precision reducer business, and maintain a “buy” rating.

Risk warning: risk of developing new products and technologies falling short of expectations; risk of production capacity release falling short of expectations; risk of large price fluctuations in the industrial chain; risk of untimely updating of information used in research reports; risk of deviations in industry size estimates, etc.