Third-quarter results surpassed expectations, and profitability improved markedly. Revenue of 1.1 billion yuan was achieved in the first three quarters of 24, up 15% year on year, and net profit to mother reached 0.13 billion yuan, up 143% year on year. The sharp increase in profit mainly benefited from a significant increase in profitability. The Q3 single quarter benefited from factors such as peak new machine stocking season for major North American customers, increase in stand-alone usage, and product structure optimization, and achieved revenue of 0.45 billion yuan in a single quarter, an increase of 45% over the previous year. Q3 net profit to mother reached 0.069 billion yuan, up 252% year on year, up 112% month on month. Net profit after deducting non-return net profit of 0.053 billion yuan, up 399% year on year, nearly doubling the month-on-month increase. Q3 gross margin increased sharply by 5.3 pct year on year, and increased 5.0 pct to 33.0% month over month, setting a new high in gross margin in a single quarter in recent years.

The general trend of upgrading AI terminal cooling solutions has become an important innovation in end-side hardware. As AI continues to penetrate, the functions of various AI terminals are becoming more complex, performance and integration are constantly improving, and heat generation is also increasing. The development of AI terminals has brought about continuous updates and upgrades of cooling materials, increasing demand for cooling devices, and driving the growth of market space in the cooling industry.

Among high-end smartphones, heat dissipation design systems based on heat dissipation materials such as graphite film and VC heat dissipation plates are gradually becoming mainstream trends. For example, in the new Iphone 16 model, Apple enhances thermal conductivity by increasing the amount of graphite film used and optimizing the internal structure. With the gradual launch of Apple Intelligence, its cooling solution is expected to be further upgraded in the new models in '25.

Positioned as a comprehensive thermal management solution provider, we can expect two-dimensional growth in product matrices & application fields. In terms of horizontal product layout, in addition to the main graphite products, the company has various product capabilities such as thermal interface materials, heat pipes, heat sinks, and cooling modules. It is one of the few manufacturers with overall reliability solution capabilities. As the preferred strategic R&D partner for important customers, it continues to define the next generation product roadmap with customers. Looking at the industrial chain level, the company already has the ability to vertically integrate graphite coil and die cutting. On the customer side, the company has basically achieved full coverage of leading customers in the 3C industry. Among major North American customers, in addition to mobile phones, the company's high thermal conductivity graphite component products are used in next-generation tablets for major North American customers. Looking forward to the future, we believe that the company can continue to enrich product categories and terminal categories among major customers, and can be expected to continue to increase in AI cooling demand for various end side terminals in the long term.

We forecast that the company's net profit for 24-26 will be 0.18/0.249/0.324 billion yuan, respectively (the original 24-26 forecast was 0.119/0.197/0.272 billion yuan, respectively, which mainly raised revenue and gross margin forecasts). Based on the comparable company's 25-year PE valuation level of 34 times, the corresponding target price is 28.22 yuan, maintaining the purchase rating.

Risk warning

Smartphone sales fall short of expectations; risk of product price fluctuations; risk of gross margin fluctuations.