The company released its 2024 three-quarter report. 2024Q1-Q3, the company achieved revenue of 1.857 billion yuan, a year-on-year decrease of 15.72%, net profit of 0.328 billion yuan, a year-on-year decrease of 27.31%, a gross profit margin of 35.44%, a year-on-year decrease of 3.92pct, a net profit margin of 17.67%, and a year-on-year decrease of 2.82pct; with 2024Q3, the company achieved revenue of 0.627 billion yuan, a year-on-year decrease of 7.35%, and net profit of 0.106 billion yuan, a year-on-year increase of 0.31%, gross profit margin of 35.05% The year-on-year decrease was 0.55pct, the net profit margin was 16.85%, and the year-on-year increase was 1.29pct.

All three rates have been reduced, and the effect of fee control efficiency has been remarkable. 2024Q3, the company's revenue still declined by a certain margin over the same period last year. We expect it to be related to weak demand in the new energy lithium battery and photovoltaic business, but the revenue decline is narrowing. In addition, the company's net profit grew, ending two consecutive quarters of decline. The gross margin ratio was down 0.55 pct from year to year. The decline was also showing a narrowing trend. It is expected to be related to the decline in the share of the new energy lithium battery business with low gross margin, and the company is also increasing the expansion of the high gross margin business; the net interest rate increased by 1.29 pct year on year, which is related to the lower cost ratio during the company period. The sales/management/ R&D expense rates were 5.3%/7.3%/3.8%, respectively, down 0.67 pct/0.23 pct/1.60 pct from year on year. The company's fee control and efficiency have increased significantly. We expect that as demand in the new energy lithium battery and photovoltaic industry gradually bottoms out, the company will see a positive revenue correction in the future.

Operating cash flow improved and inventory turnover improved. 2024Q3, the company's cash flow from operating activities was 0.174 billion yuan, an increase of 0.036 billion yuan over the previous year; in 2024Q1-Q3, the cash/operating income received from the company's sales of goods and services reached 90.46%, an increase of 12.84 pcts over the previous year. Net cash flow/revenue from operating activities reached 32.84%, an increase of 25.07pct over the previous year. 2024Q1-Q3, the number of days the company's inventory turnover was 108.61 days, down 8.25 days from the previous year, showing an improvement trend. However, with the commissioning of the company's production capacity, the number of fixed asset turnover days increased from 85.18 days in the first three quarters of 2023 to 98.53 days in the first three quarters of 2024, and the total number of asset turnover days increased from 431.17 days in the first three quarters of 2023 to 534.97 days in the first three quarters of 2024.

Fund-raising is in place to continue expanding production capacity. The company has now raised about 0.864 billion yuan for investment in the construction of the South China Phase II and East China operation headquarters through a private offering. The total investment of the two major bases is about 2.695 billion yuan. As of October 23, 2024, the company has invested a total of 0.415 billion yuan. The company bucked the trend and actively expanded production capacity, and is expected to achieve a double increase in profitability and revenue in the face of a recovery in demand.

Investment advice: As a leading enterprise in the FA field, the company is highly competitive. The company's net profit for 2024-2026 is estimated to be 0.433/0.557/0.65 billion yuan, respectively, and the corresponding PE is 36x/28x/24x, respectively, maintaining the “recommended” rating.

Risk warning: 1. Risk of SKU expansion failure; 2. Risk of declining profitability due to the intensification of industry price wars.