2024Q3's revenue and profit continued to grow, and its profitability is expected to gradually recover the company's 2024H1 revenue of 1.129 billion yuan, up 21.72% year on year; net profit to mother 0.172 billion yuan, up 1.75% year on year; net profit after deducting non-return to mother 0.146 billion yuan, up 10.27% year on year. The company's gross sales margin for the first three quarters of 2024 was 35.58%, down 2.13pct; net profit margin was 15.29%, down 2.97pct. We believe that high demand in booming industries such as AI servers is expected to drive a recovery in the company's operating rate. Combined with product structure optimization and internal cost reduction and efficiency measures, the company's profitability is expected to be restored. Affected by factors such as production capacity expansion falling short of expectations and downstream recovery progress falling short of expectations, we lowered our 2024-2025 profit forecast. We expect the company's net profit to be 0.271/0.372/0.545 billion yuan in 2024-2026 (the original value in 2024-2025 was 0.286/0.415 billion yuan), EPS was 0.66/0.91/1.33 yuan (the original value in 2024-2025 was 0.70/1.01 yuan). The current stock price corresponds to PE 30.6/22.3/15.2 times, we believe that the company's future performance is expected to continue to improve and maintain a “buy” rating.

2024Q3's performance in a single quarter exceeded expectations, showing an inflection point in performance

The company achieved revenue of 0.416 billion yuan in a single quarter of 2024Q3, up 20.74% year on year and 9.53% month on month; net profit to mother was 83.349 million yuan, up 31.49% year on year, up 72.93% month on month; net profit without return to mother was 70.709 million yuan, up 22.19% year on year, up 77.31% month on month. The company's gross sales margin for the 2024Q3 quarter was 37.17%, up 1.73 pct from month to month, and the net sales margin was 20.08%, up 7.38 pcts from month to month.

Benefiting from product structure optimization and the results of cost reduction measures, the company's single-quarter performance improved markedly in the third quarter.

High demand for AI servers is driving sales of Ta-C drills, and production capacity in Thai factories is driving the growth of global demand for AI servers. According to Counterpoint Research data, the 2024Q2 global server market revenue reached 45.422 billion US dollars, an increase of 35% over the previous year. The company focuses on small-scale research and development in high-end fields such as AI and semiconductors, and has mastered Ta-C lubrication coating technology. The high boom in the AI server market is expected to increase the sales growth of the company's high-end coated drill bits and increase the sales share of the company's high-end drill products. 2024Q4's Thai plant is expected to gradually be mass-produced, and the company's share of high-end products will increase, and the implementation of overseas production capacity is expected to improve the company's overall performance and profitability.

Risk warning: Downstream demand recovery falls short of expectations; capacity construction falls short of expectations; product expansion falls short of expectations.