Incident: The company released its 2024 three-quarter report. In the first three quarters, the company achieved total operating income of 5.39 billion yuan, +2.0% year over year, and realized net profit to mother -0.16 billion yuan, -137.5% year over year; total operating income of 1.91 billion yuan, +8.1% year over year, realized net profit to mother -0.06 billion yuan, -156.1% year on year. Performance was under phased pressure.

Continuously strengthen core competitiveness and continuously expand revenue sources. 1) In terms of product structure: The company gives full play to its technical advantages in the field of electronic-grade glass fiber, as well as its competitive advantages in the fields of wind power blades, electronics, electrical insulation, etc., to upgrade the fine yarn production line, continuously optimize the product structure, and continuously consolidate the basic revenue market. 2) On the downstream customer side: Actively expand application areas, continue to cultivate and expand composite material application scenarios, and step up efforts to promote industrial layout such as photovoltaic frames, energy-saving doors and windows, wind power panels, etc.; at the same time, the region is actively developing overseas customers, continuously expanding market coverage, and continuing to explore new sources of revenue growth.

Gross profit margins are falling, and profitability is under pressure. First three quarters of 24: Gross profit margin: Due to weak overall downstream demand, compounded by the expansion of production capacity in the industry and imbalance in the supply and demand phase, product prices fell 6.7 percentage points year on year to 14.1% year on year. Sales expense ratio: Under inventory competition, the company increased its downstream customer development efforts, and the sales expense ratio increased slightly by 0.5 percentage points to 2.7%. Management expense ratio: Due to depreciation, amortization, and increased consulting agency fees, the management fee ratio increased 0.7 percentage points to 4.9% year-on-year. Financial expense ratio: Due to the increase in short-term loans, the financial expense ratio increased by 1.1 percentage points to 4.5% year-on-year. R&D cost rate: The company continues to explore downstream application areas of glass fiber products, continuously optimizes the product structure to strengthen core competitiveness, and R&D investment continues to increase. The R&D cost rate increased by 1.1 percentage points to 5.5% over the same period last year. Overall, the company's comprehensive expense ratio increased 3.5 percentage points year on year, and net sales margin fell 11.7 percentage points year on year to -2.9% year on year, putting pressure on profitability.

High-end products have great advantages, and competitiveness continues to improve. The company has been deeply involved in the glass fiber industry for many years. The competitive advantage of high-end products is outstanding, production capacity continues to be optimized and improved, and its comprehensive competitiveness continues to increase: 1) The company has long focused on the main glass fiber industry, with a series of products with global competitive advantages, partially breaking the monopoly of foreign manufacturers and filling domestic gaps. In particular, fine yarn products have outstanding comprehensive competitiveness in downstream semiconductors and other fields, and downstream customers are stable. 2) Recently, the company launched a 0.085 million ton electronic grade glass fiber production line equipment renewal and efficiency improvement project to continuously improve the market competitiveness of fine yarn products; in addition, the company is also successively upgrading and optimizing old production lines, continuously strengthening product technical advantages, and continuing to enhance overall competitiveness. 3) Facing weak downstream demand in the industry, the company actively explores new application fields of glass fiber and continues to expand domestic and foreign downstream customers. Currently, the price of glass fiber products has stopped falling and stabilized. With the continuous expansion of the glass fiber application field and the gradual recovery of downstream demand, the company's performance is expected to rise at an inflection point.

Profit forecast: The company's overall competitive advantage is outstanding, and sales volume has maintained steady growth; the unit price of glass fiber has stopped falling and stabilized, downstream demand is recovering, and the company's performance is expected to rise at an inflection point. We expect a compound revenue growth rate of 7.9% for 2024-2026.

Risk warning: risk of a sharp economic downturn; downstream recovery or falling short of expectations; geopolitical risk.