Incidents. Yutong Technology released its 2024 three-quarter report. 2024Q3 achieved revenue/net profit/net profit minus non-net profit of 4.905/0.617/0.607 billion yuan, an increase of 10.45%/11.41%/13.73% year on year; in the first three quarters of 24, it achieved revenue, net profit to mother, 12.259/1.114, 1.13 billion yuan, up 13.44%/13.05%/9.00% year over year.

Downstream consumption is gradually picking up, and AI is driving the consumer electronics category to continue to rise. 24Q3's revenue was 4.905 billion yuan, up 10.45% year over year. We judge that the main reason is the gradual recovery of downstream consumer electronics. Global Apple/non-Apple phone shipments in 24Q3 are +3.5%/+4.2% year on year. Looking ahead, the AI switching wave will continue to drive the upward trend in consumer electronics revenue; in terms of tobacco and alcohol packs: we think that although it is still in the storage cycle, there is a slight year-on-year recovery; in terms of environmentally friendly paper and plastic: the company expanded from the consumer electronics field to luxury goods, fresh products and other categories.

The level of profit has remained stable, and the construction of smart factories has come to an end. The year-on-year change in gross margin/net margin in 24Q3 - 0.50/+0.11pct to 27.57%/13.01%. The slight decline in gross margin was mainly due to the decline in the US dollar exchange rate. At the cost rate level, the 24Q3 sales/management/R&D/finance expense ratio changed +0.32/-0.28/-0.77/-0.55pcts year-on-year to 2.70%/5.35%/3.84%/0.05%. Among them, the decline in financial expenses was mainly due to the large appreciation of the US dollar in the same period last year. Net cash flow from operating activities increased 21.77% year-on-year to 0.321 billion yuan in 24Q3, mainly due to lower procurement costs. 24Q3 accounts receivable and notes increased 1.6% from the end of 2023 to $5.787 billion, and remained stable. In 24Q3, the company's capital expenditure fell 11.8% month-on-month to 0.201 billion yuan. The company has completed the construction of several smart factories, and it is expected that CAPEX will continue to decline in the future.

Investment suggestion: With strong production management and integrated service capabilities, the company is gradually building a one-stop printing service matrix covering the fields of fine packaging/outer packaging/commercial packaging. With the gradual improvement of downstream consumption, we expect 3C packaging to return to the upward boom range, compounding the continued expansion of the company's market share, and the company's revenue may accelerate. Profit side companies actively carry out product upgrades and efficiency upgrades. In the short term, we are optimistic that declining costs will drive profit recovery. In the medium term, we will continue to pay attention to the recovery in the company's ROE: 1) the decline in capital expenditure; 2) the steady improvement of the 3C main profit center; 3) After market-based bidding for tobacco and alcohol, Yutong obtained high-profit margin orders with strong production and service efficiency. In the future, the company will continue to actively promote the global business layout. As factories in North America, Southeast Asia and other places are gradually put into operation, overseas revenue will remain high. We expect net profit attributable to the parent company in 2024-2026 to be 1.61/1.85/2.07 billion yuan, corresponding PE is 14X/12X/11X, maintaining the “recommended” rating.

Risk warning: Demand for downstream terminals falls short of expectations; raw material prices rise; competition within the industry intensifies; risk of exchange rate fluctuations.