Incident: In the first three quarters of 2024, the company achieved revenue of 1.12 billion, YOY -30.5%, net profit attributable to mother - -0.008 billion, net profit deducted from non-mother - -0.075 billion. Among them, Q3 achieved revenue of 0.39 billion in a single quarter, -30.1% year-on-year, and +36.2% month-on-month; realized net profit to mother -0.033 billion, net profit not attributable to mother -0.057 billion, and losses increased slightly from month to month.

Weak demand is putting pressure on growth, and average prices are still falling. 1) Sales volume: Sales volume is expected to exceed 4,000 tons in a single quarter in 24Q3, down about 15% year on year. We think it is mainly affected by weak terminal demand. According to Baichuan Yingfu data, the apparent domestic carbon fiber consumption from January to September 2024 was 0.044 million tons, YOY -12%. We expect the company's carbon fiber sales growth to gradually improve in the future. First, the application field of carbon fiber terminals will continue to expand, and demand is expected to return to the growth trend; second, the company will increase sales efforts and continue to expand customers, and the share is expected to continue to increase. 2) Price: The average price for 24Q3 is estimated to be about 0.091 million/ton, down about 18% year on year and 7% month on month. The price of carbon fiber is still bottoming out. According to Baichuan Yingfu data, the average price of carbon fiber in 24Q3 is 0.1 million/ton, down 9% from 24Q2. As of October 26, the average domestic carbon fiber small to medium wire bundle price (tax included) was 0.098 million/ton, a slight decrease from the average price of 24Q3. We judge that under current prices, it is already difficult for most domestic consumer goods manufacturers to achieve profits. According to Baichuan Yingfu data, as of October 18, the gross profit margin of the carbon fiber industry was -7.9%, and the price was already below cost. There is limited room to judge that carbon fiber prices will continue to decline. 3) Cost: The estimated cost of 24Q3 tons is about 0.08 million/ton. Driven by scale growth and cost reduction, efficiency and consumption reduction measures, we expect that the company's ton cost will still have room to decrease. 4) Profit: Under price pressure, net profit and loss of 24Q3 tons increased slightly month-on-month. The company hopes to improve profitability through multiple measures. One is to increase the output of high-end products and increase profits by increasing the added value of products; second, to amplify the cost advantage and increase the shipment volume of downgraded products while stabilizing prices; third, to continue to increase the development of new products, accelerate the launch of new products in the middle and high-end, and consolidate the pricing advantages of new products.

Production capacity construction is progressing steadily, and leading advantages continue to be strengthened. 1) Technology: The company took the lead in overcoming carbon fiber “dry spray wet spinning” spinning technology in China, and has the industrialization capabilities of T700 grade, T800 grade, T1000 grade and M40 grade, and successfully achieved the successful preparation of T1100 grade carbon fiber. In addition, the company successfully prepared dry-spray wet spun T700 grade 48K large wire bundle carbon fiber. The product performance is comparable to similar international products, and the product takes into account the process performance of small wire bundles and the cost advantages of large wire bundles. 2) Production capacity: At present, the total production capacity has reached 0.0285 million tons. The Lianyungang 0.03 million ton project is progressing steadily. It is expected that production lines will enter the trial production stage one after another in 25 years. 3) Product: The company's products cover various models of 1K-48K, covering all traditional mature and strategic emerging fields. The company has the ability to provide customized production with performance indicators according to the different needs of downstream application fields, and can flexibly use the flexible switching characteristics of production lines, dynamically adjust the production process, and switch between large wire bundles/small wire bundles and carbon fiber production of different specifications at any time to meet market demand. The company's T700 grade and above product lines have maintained a market share of more than 50% in the domestic market for many years, accounting for 80% in the domestic hydrogen storage bottle field and 60% in the carbon/carbon composites field. 4) Industrial chain extension: The company currently focuses on promoting the application verification and evaluation of carbon fiber and its composite materials in low-altitude scenarios such as EVTOL, low-altitude cargo drones, low-altitude manned aerial vehicles, low-altitude agricultural planters, etc., and continues to cooperate with COMAC to verify the application of typical structural parts such as large aircraft. It is expected that in the future, it will gradually enter the downstream composite field at the right time.

Investment advice: We lowered net profit for 24-26 to 0.02, 0.13, and 0.3 billion (the original 24-26 profit forecast was 0.23, 0.56, 0.76 billion), mainly taking into account relatively weak demand, lowering average price and sales assumptions, and slightly increasing the unit cost assumption. The adjusted profit corresponds to the current stock price PE of 968.2, 156.6, 68.9 times, and PB to 4.4, 4.4, and 4.3 times. Considering the lower price of carbon fiber, the company's profits were under pressure, and the rating was lowered to an “increase in weight” rating.

Risk warning: The risk of production capacity falling short of expectations, sharp price declines, rising raw material prices, falling costs falling short of expectations, management risks of scale expansion, deviations in industry supply and demand estimates, and delays in usage information or untimely updates.