3Q24 results are in line with our expectations

The company announced its 2024 three-quarter report. In the first three quarters, the company achieved operating income of 1.589 billion yuan, a year-on-year increase of 52.75%; achieved net profit of 0.106 billion yuan, an increase of 10.60% over the previous year; and achieved net profit of 0.1 billion yuan after deduction of non-return to mother. The year-on-year increase was 15.54%. Corresponding to the single quarter of 3Q24, the company achieved operating income of 0.631 billion yuan, a year-on-year increase of 60.90%; realized net profit attributable to mother 0.041 billion yuan, an increase of 40.67% year on year; realized net profit deducted from non-mother 0.04 billion yuan, an increase of 51.74% year on year. The company's performance was in line with our expectations.

The overall revenue and gross margin situation in 3Q24 continued the trend of 2Q24. The revenue side benefited from the deepening penetration rate of new energy sources and continued to achieve rapid growth, but gross margin declined 5.6 ppt year-on-year, which was basically flat from month to month, and remained low. We believe that on the one hand, the company is still affected by pressure from automobile prices and rising raw material prices. On the other hand, overseas subsidiaries and new domestic production capacity are still climbing in production capacity, which is a drag on the gross margin level. On the cost side, the 3Q24 company's expense ratio for the three periods was 12.2%, a year-on-month decrease of nearly 4 ppt. We believe this shows an improvement in internal operating efficiency.

Development trends

The new energy connector business continues to be booming. According to China Automobile Association data, domestic NEV sales reached 3.378 million units in 3Q24, an increase of 34% over the previous year, which is faster than the overall market growth rate. The NEV penetration rate reached 46% in September 2024, a year-on-year increase of 14 ppt, reaching a record high, and the NEV industry continues to thrive. In terms of power exchange, by the end of September 2024, NIO had deployed more than 2,500 power exchange stations nationwide, and the first fourth-generation power exchange station was put into operation in Shenzhen in July. Fourth-generation power exchange stations support autonomous power exchange for multiple brands and models. We believe that with the gradual expansion of the deployment scope of fourth-generation power exchange stations, the demand for power exchange connectors is expected to increase further.

Align with industry trends and lay out emerging businesses. In terms of AI, the company is actively developing new categories such as SFP+, CAGE, and high-speed board-to-board connectors in the data center scenario, and will focus on products such as AEC components in future development. On the medical side, the company has developed products for scenarios such as endoscopy, radiofrequency ablation, and microwave ablation, and has received initial orders. In terms of humanoid robots, the company develops low-voltage connectors, Type-C and Ethernet wiring products, and is actively seeking commercialization opportunities.

Profit forecasting and valuation

We have basically kept the company's profit forecast for 2024-25 unchanged. The current stock price is 40.3, 27.4 times P/E for 2024-25. Considering the upward shift in the overall valuation center of the market, we raised the target price by 40% to 43.96 yuan based on 28 times P/E in 2025, corresponding to 2% upward space. Maintain outperforming industry ratings.

risks

Sales of electric vehicles and installed energy storage capacity fell short of expectations, expansion in new fields fell short of expectations, and overseas business was blocked.