3Q24 results are in line with our expectations

The company announced 3Q24 results: revenue of 1.189 billion yuan, up 41.5% year on year, up 7.66% month on month; net profit of 0.151 billion yuan, up 23.54% year on year, up 3.61% month on month; after deducting non-net profit of 0.149 billion yuan, up 24.91% year on year, up 3.02% month on month. Non-recurring profit and loss were mainly government subsidies. The company's 3Q24 performance was in line with our expectations.

Development trends

The consumer electronics business is growing steadily, and automotive connectors remain booming. Demand for consumer electronics continued to recover in 3Q24. According to IDC, 3Q24 global/Chinese smartphones increased 4%/3.2% year over year to 0.316 billion units/68.78 million units, respectively. Sales of new energy vehicles in China continued to improve in 3Q24. According to the China Automobile Association, 3Q24 sales of new energy vehicles in China increased by 33.46%/18.35% year on year to 3.38 million units, and the penetration rate of new energy vehicles increased by 12.56pp/5.94ppt to 44.89% year over year, respectively. We judge that 3Q24's revenue achieved a month-on-month increase. Mainly consumer electronics businesses such as RF connectors maintained steady growth, and the automotive connector business contributed greatly to the increase in performance.

Gross margin increased month-on-month, and cost control continued to be optimized during the period. 3Q24 gross margin increased 1.12ppt to 33.6% month-on-month. We judge that the main reason is the increase in the share of high-margin automobile business. During the 3Q24 period, the cost rate decreased by 1.95ppt year-on-year, and increased 0.27ppt to 18.66% month-on-month, and the overall cost rate declined steadily during the period; among them, R&D expenses increased 15.81% year-on-year/remained basically flat to 0.102 billion yuan month-on-month, and the company continued to maintain a high level of R&D investment.

I am optimistic that the continued release of high-frequency high-speed connectors and the intensive release of new Android devices in the fourth quarter will drive a month-on-month improvement in the consumer electronics business. With the intensive release of new products by downstream car manufacturers and the continuous improvement of the level of automobile intelligence, we are optimistic that the company will continue to benefit from its technical and scale advantages in the field of high-frequency high-speed connectors, and continue to increase its market share, forming a second growth curve. Furthermore, as demand for consumer electronics continues to recover and the intensive release of new Android flagship products in the fourth quarter, we are optimistic about the month-on-month improvement trend of the company's consumer electronics business.

Profit forecasting and valuation

Considering the high growth in the automotive electronics business, the 2024/2025 net profit forecast was raised 7.2%/7.6% to 0.644 billion yuan/0.862 billion yuan. The current stock price corresponds to 29.8 times/22.2 times P/E for 2024/2025. Maintaining an outperforming industry rating, taking into account profit forecast adjustments and increased industry competition, we raised our target price by 4.3% to 48 yuan, corresponding to 31.6 times/23.5 times P/E in 2024/2025, with 6% upside compared to the current stock price.

risks

Demand for automotive connectors is sluggish, new business expansion such as industrial control falls short of expectations, and demand for consumer electronics is sluggish.