3Q24 results are in line with our expectations

The company announced 1-3Q24 results: the company achieved revenue of 0.835 billion yuan in the first three quarters of 2024, up 1.9% year on year; revenue for the third quarter was 0.278 billion yuan, down 2.06% year on year; net profit from 1-3Q24 was 0.169 billion yuan, down 5.29% year on year; net profit from 3Q was 0.054 billion yuan, down 10.67% year on year; the third quarter and 1-3Q24 results were basically in line with our expectations.

Profitability remained relatively stable: 1-3Q24's gross profit margin was 34.8%, -1.4ppt; 3Q24 single-quarter gross profit margin was 33.0%, year-on-year -3.3ppt. In terms of expenses, the 3Q24 company's sales expense rate/management expense rate/ R&D expense rate/ financial expense ratio was 2.0%/6.0%/3.9%/-2.1%, compared with 0.8ppt/0.2pp/ -1.2pp/ -2.6ppt. Among them, the change in the financial expense ratio was mainly due to the increase in interest income from the company's deposits.

Development trends

The automotive self-lubricating bearing business is progressing steadily: The technical barriers for automotive self-lubricating bearings are high. The company attaches importance to R&D investment. It has now entered the supply chain of leading automakers including BMW, Audi, Volkswagen, Volvo, etc., and is gradually expanding some new energy models. We believe that the auto parts supply chain is stable. The company has accumulated a large number of leading customer resources. The automobile business is expected to become the company's core growth point. At the same time, the gross margin of the automobile business is high, and the improvement of the company's product structure may further drive the profitability of the business.

The “rolling of wind power” is progressing steadily, expanding applications in the robotics industry. 1) Wind power sector: We believe that sliding bearings in the wind power sector are expected to replace rolling bearings due to their performance and cost advantages. We have learned that the company's sliding bearing products have been tested in OEMs. The company has a first-mover advantage in the field of wind power sliding bearings and is expected to open up new markets this year. 2) Robotics field: According to the company's 24-year semi-annual report, the company is currently cooperating with several robot manufacturers and related suppliers to develop and provide samples. We believe that the company actively lays out sliding bearings at joints, which is expected to create a first-mover advantage and achieve continuous revenue growth driven by the rapid development of the robotics industry.

Profit forecasting and valuation

We keep our 2024 and 2025 earnings forecasts unchanged; current stock prices correspond to the 2024/2025 price-earnings ratio of 19.9 times/17.1 times. Considering the steady growth of the company's automotive bearing business, we maintained an industry rating and target price of 21.05 yuan, corresponding to 24.4 times the price-earnings ratio of 2024 and 20.9 times the price-earnings ratio of 2025. There is 22.2% room for growth compared to the current stock price.

risks

The industrialization process of wind power falls short of expectations; the risk of upstream raw material price fluctuations; the risk of international trade friction.