Incident: On October 25, Xinlai Yingcai released its report for the third quarter of 2024. In the first three quarters, the company achieved revenue of 2.161 billion yuan, YOY +9.35%; realized net profit of 0.198 billion yuan, YOY +17.63%; deducted non-net profit of 0.184 billion yuan, YOY +12.53%.

Revenue grew steadily in 24Q3, and profits were under pressure in the short term. The company's overall revenue in Q3 2024 was steady, moderate and positive. In a single quarter, the company achieved revenue of 0.743 billion yuan, YOY +4.92%, and QOQ +1.92%. However, in terms of profit, depreciation of fixed assets continued to increase due to the company's continuous investment, resulting in a decline in gross margin compared to the same period last year. 24Q3 achieved net profit of 0.058 billion yuan, YOY -0.18%, and QOQ -20.05%; realized deduction of non-net profit of 0.051 billion yuan, YOY -6.74%, and QOQ -29.00%. In terms of profit margin, 24Q3's gross profit margin was 23.92%, YOY -1.78pct, QOQ -1.88pct; net margin reached 7.74%, YOY -0.44pct, and QOQ -2.13pct.

The semiconductor components business is still the main source of incremental performance for the company. Refer to the data disclosed in the company's 2024 interim report:

24H1's parts business revenue 0.447 billion yuan, YOY +48.01%, gross profit margin of 28.34%, YOY -1.44pct, constituted the main increase in the company's revenue; food business revenue 0.803 billion yuan, YOY +0.07%, gross profit margin 22.74%, YOY +3.36pct; pharmaceutical business revenue 0.169 billion yuan, YOY +2.76%, gross profit margin 31.67%, YOY -10.64pct.

There is broad space for semiconductor components, and localization is advancing at an accelerated pace. In the field of semiconductor components, the company's products cover gas pipes, valves, filters, vacuum valves, pipe fittings, cavities, etc., and have a broad market space.

At present, the company's products have passed the certification of the top two semiconductor equipment manufacturers in the US and have become their first-level suppliers, filling the gap in domestic ultra-high purity application materials. According to SEMI data, the global semiconductor equipment market reached 100 billion US dollars in 2023 and is expected to resume growth in 2024. Total global semiconductor equipment sales are expected to reach a new high of 124 billion US dollars in 2025, bringing increased demand to the upstream semiconductor components industry.

The food business performance is steady, the share of major customers continues to break through, and the domestic market share continues to increase. The company acquired Shandong Bihai in 2018 to enter the field of food packaging materials and packaging equipment. The food business performance contributed steadily. 24H1 Shandong Bihai contributed 0.08 billion yuan to the company's net profit. At present, Shandong Bihai has entered the supply chain of leading domestic and foreign customers, covering customers such as Sanyuan, Yili, Master Kong, Fino, Nestle, Huiyuan, Wahaha, and Wandashan. It is expected that with its “aseptic packaging materials+filling machine equipment” combination plan, it will gradually open up the domestic alternative market and further expand its market share. In the future, the company will focus on breaking through domestic first-line brand customers and continue to iterate high-speed filling equipment to enhance product competitiveness.

Investment advice: We expect the company's 2024-2026 revenue to be 3.091/3.782/4.495 billion yuan, and net profit to mother of 0.273/0.416/0.52 billion yuan, corresponding to the current PE price, which is 38/25/20 times, respectively. We are optimistic about the company's leading position in the semiconductor component circuit and the long-term growth brought about by accelerated localization of semiconductor components, and maintain the “recommended” rating.

Risk warning: Downstream production expansion falls short of expectations; prices of upstream raw materials fluctuate; customer expansion falls short of expectations.