The company's 24Q1-Q3 revenue was 1.04 billion yuan, -1.69% YoY, net profit 0.183 billion yuan, YoY +13.06%, after deducting non-net profit 0.176 billion yuan, +24.22% YoY, of which 24Q3 revenue was 0.394 billion yuan, -5.64%/+15.97% YoY, net profit 0.067 billion yuan, YoY -6.34%/+8.72%, net net profit 0.065 billion yuan, -1.01%/+8.46% YoY. 24Q3 gross margin/net profit margin 34.10%/16.94%, -4.70/-1.13pct month-on-month, mainly due to price reduction of second-generation carbon tube products; the period cost rate was 14.90%, -2.39pct year on year, sales/management/R&D/financial expense ratio -0.07/-1.78/-0.79/+0.25pct year on year, with excellent cost control. Breakthroughs in new technology and the release of new production capacity are expected to increase the company's performance and maintain the “gain” rating.

Multiple factors drive carbon tube demand, and profitability is temporarily under pressure

In terms of power, we believe that the carbon tube penetration rate is expected to increase. The main reasons are: 1) battery factories' requirements for energy density, charging rate, etc., driving demand; 2) carbon tube price reduction, and downstream companies' willingness to switch from carbon black to carbon tubes; 3) new technologies such as large cylindrical batteries and solid state batteries demand higher carbon tubes. In terms of energy storage, the increase in demand for energy storage is also expected to drive demand for carbon tubes. In terms of shipping, we estimate that the company's Q3 shipments will increase month-on-month, the penetration rate of third-generation management will gradually increase, and overseas customers such as LG will increase their share of overseas revenue. In terms of profitability, due to supply and demand, the decline in the prices of first-generation and second-generation products has led to a decline in gross margin. With the iteration of new technology and the increase in the share of new products, profitability is expected to pick up next year.

The leading position is stable, and single-wall projects are being accelerated

The company's market share in the field of carbon nanotube conductive pastes reached 43.4%/40.3%/46.7% respectively from 21 to 23, ranking first in the industry. The company has advantages in scale and position, production capacity continues to expand, and the market share is expected to increase further. The company has gradually entered the supply chain of well-known Japanese and Korean companies such as Panasonic and LG, and the customer partnership is stable. The company's production capacity plans spread overseas, and the construction of a production line with an annual output of 10,000 tons in the US and a 3,000-ton carbon nanotube conductive paste production line in Europe is expected to achieve nearby support and expand the company's share of overseas customers. In addition, construction of the company's domestic 450-ton single-walled carbon tube project has also begun. The single-wall technical barrier is high. Currently, only a few manufacturers in the world can produce single-walled carbon pipes. The company is expected to lead technological innovation and demand upgrading, and further increase in performance.

Maintain an “increase in holdings” rating

Considering the deterioration of the industry's supply and demand pattern and the decline in the company's second-generation product prices, we assume gross margin, we expect the net profit to be 0.267/0.372/0.471 billion yuan (previous value 0.319/0.447/0.564 billion yuan), which is 25 times the average PE compared to the company's 25-year Wind consensus. Considering the company's prominent position in the industry and the gradual expansion of production capacity, we are giving the company a 25-year target PE 30 times, corresponding to the target price 32.40 yuan (previous value 22.04 yuan), maintaining the “gain” rating.

Risk warning: Carbon nanotube penetration rate fell short of expectations; profitability declined due to worsening industry competition; demand for single-walled tubes fell short of expectations.