3Q24 results slightly exceeded market expectations

The company announced 3Q24 results: 3Q24 revenue of 1.53 billion yuan, +24.1% year over month, +15.48% month on month; net profit to mother 0.235 billion yuan, +30.77% year on year, +54.09% month on month. 1-3Q24 revenue was 4.272 billion yuan, +33.79% year over year, and net profit to mother was 0.607 billion yuan, +33.24% year over year.

Driven by increased profitability, the 3Q24 results slightly exceeded market expectations.

Development trends

Domestic and foreign businesses are growing at the same time, and the growth rate of new products is high. 3Q24's lighting control system/motor control system/energy management system/vehicle electronics and electrical appliances business revenue was 7.57/ 2.33/ 0.25/0.214 billion yuan respectively, up 19.3%/16.8%/94.3%/0.2% year-on-year respectively, and 17.2%/12.1%/48.5%/5.6%, respectively. The high growth rate of the energy management business is mainly due to the rapid deployment of new product domain controllers along with the core customer's ideal vehicle. In 3Q24, domestic and overseas revenue of 0.98/0.509 billion yuan respectively, were +15.6%/+40.0% year-on-year respectively. The high year-on-year growth rate of overseas revenue was mainly due to overseas customer projects such as BMW, Porsche, Ford, and Daimler climbing. We believe that as the company continues to gain new project targets and deepens R&D cooperation with new energy customers such as Ideal and NIO, the company's bicycle accessories are expected to rise sharply in volume and price.

Profitability was restored in 3Q24, and cash flow performance was impressive. 3Q24 gross margin was 29.65%, -0.91 ppt year over year, +3.54 ppt month over month. We expect that the month-on-month improvement in gross margin will be mainly driven by multiple factors such as increased capacity utilization and reduced raw material costs, and that the profitability of early low-margin new energy vehicle domain controller products will gradually improve. Looking ahead, we believe that with the gradual release of the scale effects of new products and new projects, there is still room for improvement in profitability. The company insisted on lean management, and the cost rate for the period was further reduced to 12.3%, -3.72pp/ -2.45ppt, respectively. The 3Q24 operating cash flow performance was impressive, with a year-on-year increase of +403% to 0.414 billion yuan, a record high in a single quarter.

New customer projects continue to climb the slope, speeding up investment in overseas production capacity. Thanks to the rapid expansion of domain controller projects, we expect 3Q24 to account for about 15% of revenue, and the share of new energy customers will continue to increase.

The company attaches importance to the market-based layout of cutting-edge technology, launched new products such as body/chassis/suspension controllers and Efuse, and has successively entered the global support system for European and American customers. Furthermore, the company has increased its global production capacity layout. The Japanese factory has already been put into operation, and the European and North American plant projects continue to advance. We believe that the company has sufficient technical reserves and perfect manufacturing capabilities, and is expected to follow the intelligent trend of electrification and achieve continuous business expansion.

Profit forecasting and valuation

Due to the improvement of the company's operating efficiency, we raised 2024/2025 net profit by 9.6%/9.2% to 0.892 billion yuan/1.139 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 26.8 times/21.0 times. Maintaining an outperforming industry rating, we raised our target price by 25.8% to 76.00 yuan, which corresponds to 34.4 times the 2024 price-earnings ratio and 27.0 times the 2025 price-earnings ratio, with 28.5% upside compared to the current stock price.

risks

The expansion of new projects fell short of expectations, the profitability of new projects fell short of expectations, and global expansion fell short of expectations.