Incident: The company released its report for the third quarter of 2024. In the first three quarters of 24, it achieved operating income of 0.533 billion yuan, an increase of 33.26% year on year; realized net profit of 0.231 billion yuan, a year-on-year decrease of 5.59%. 24Q3 achieved operating income of 0.242 billion yuan, a year-on-year increase of 187.44%; realized net profit to mother of 0.127 billion yuan, an increase of 254.20% year-on-year.

Comment:

Phased recovery of downstream demand: The company disclosed in its 2023 annual report that “during the reporting period, due to phased changes in the pace of customer demand, which affected the company's product demand for the current year, the company adjusted its production plan during the reporting period, and the number of production and deliveries decreased, which had an impact on the company's performance.” The company's production and sales volume of carbon fiber products for the full year of 2023 declined markedly year-on-year. The 24-year semi-annual report revealed, “At the end of the reporting period, customer demand has steadily rebounded, and next-generation carbon fiber products represented by ZT9H and ZT7H high-performance carbon fiber products continue to be urgently needed by customers.

Over the past two months, the number of products delivered by the company has increased markedly, showing a significant recovery.” Combined with the company's Q3 business data, the company's downstream demand may have recovered in a phased manner.

Gross margin stabilized month-on-month, and R&D expenses declined: the company's gross profit margin for the first three quarters of 24 was 61.31%, and gross margin fluctuated slightly from quarter to quarter; the main reason for the year-on-year decrease of 14.42PCT was also due to an increase in fixed costs after the new production line was put into operation. R&D expenses decreased year on year, while revenue increased year on year, so the R&D expense ratio decreased by 6.12 PCT year on year. Accounts receivable increased by 62.93% compared to the end of 23, mainly due to increased operating income.

Multi-type new products have begun to contribute revenue, and the third phase of production capacity guarantees the recovery of downstream demand: the company's next-generation carbon fiber products, represented by ZT9H, have achieved stable batch production and supply in 2023, and contributed about 0.15 billion yuan in revenue. After the engineering preparation of 24H1 and ZM40X was completed, sales were formed in the aviation and aerospace fields, and products such as ZM40J, ZT8E and fabric actively expanded application scenarios and formed sales. In order to further strengthen the ability of high-performance carbon fiber materials to support and guarantee downstream customers, 22H1 chose to finance through fixed increases to carry out the construction of a high-performance carbon fiber and fabric product project in the third phase of the project. By the end of 2023, the new production capacity had reached the intended state of use and revenue had been realized, providing a strong guarantee for the possible recovery and growth of downstream demand in the future.

Profit forecast, valuation and rating: Combined with the analysis of semi-annual reports and three-quarter reports, the company's downstream demand has shown a recovery trend. We forecast that the company's 2024-2026 net profit will be 0.35/0.411/0.467 billion yuan, EPS 0.80/0.93/1.06 yuan respectively, and PE corresponding to the current stock price will be 41/35/30X, respectively. Maintain the company's “gain” rating.

Risk warning: the risk of customer concentration; the risk of product market development; the risk of military price adjustments; the risk of gross margin fluctuations; the risk of accounts receivable recovery; the risk of market competition.