2024Q3 revenue continues to grow high, binding high quality customers to be optimistic about long-term growth and maintain a “buy” rating

2024Q1-Q3 achieved revenue of 2.987 billion yuan (+40.33%), net profit of 0.302 billion yuan (+14.5%), after deducting non-net profit of 0.287 billion yuan (+11.36%). 2024Q3's revenue was 1.124 billion yuan (+42.99%), net profit due to mother was 0.094 billion yuan (+2.78%), after deducting non-net profit of 0.091 billion yuan (+0.24%), net profit of 0.107 billion yuan (+15.43%) after excluding exchange gains and losses. New projects in the HOT/SharkNinja foundry business continue to drive high revenue growth. We maintain our profit forecast. We expect net profit to be 0.408/0.538/0.674 billion yuan in 2024-2026, corresponding EPS is 1.10/1.44/1.81 yuan, and the current stock price corresponds to PE 18.0/13.7/10.9 times. On a long-term perspective, large customers with advantages in the home appliance foundry business are expected to gradually broaden their revenue boundaries. At the same time, they are optimistic about the continuation of new projects such as dishwashers and the automobile motor business Growth thus drives up profits and maintains a “buy” rating.

HOT/SharkNinja OEM business continues to expand new projects, focus on Q4 automotive motor business peak season

Major SharkNinja and HOT customers are expected to maintain a high growth trend, driven by new projects. (1) HOT is expected to achieve high double-digit growth, increasing the contribution of humidifiers to new projects, and is better able to take on fan projects. (2) SharkNinja is expected to double growth in a single quarter, and the vacuum cleaner project is starting quickly. (3) TTI, as the company's main vacuum cleaner customer, has a high share in its vacuum cleaner supply system and is expected to remain stable with stable TTI sales. (4) Automobile motors began their peak season in September. Currently, the overall trend continues the September performance. Along with the increase in scale, the profitability of the automotive motor business is expected to gradually increase. On a medium- to long-term perspective, binding the home appliance foundry business to high-quality major customers will broaden revenue boundaries. Continued development of new projects such as personal care/health/garden tools around major customers and independent development of projects such as dishwashers is expected to drive continuous revenue growth. At the same time, automobile motors are expected to maintain a high increase in revenue and continue to improve profitability along with the expansion of fixed-point projects.

2024Q3 profitability is affected in stages by the gross margin base and exchange rate, and the cost ratio is well controlled

The gross margin for 2024Q1/2024Q2/2024Q3 was 17.4%/17.9%/17.4%, respectively, -0.7/+0.6/-2.1pct year-on-year, respectively. The gross margin for a single quarter declined year-on-year or was mainly due to the high contribution of new projects during the same period. On the cost side, the fee rates for the 2024Q1/2024Q2/2024Q3 period were 6.5%/4.8%/8.3%, respectively, and -3.0/+6.9/+1.9pct year-on-year, respectively. Among them, the 2024Q3 sales/management/R&D/finance expense ratios were 0.4%/4.05%/3.13%/0.68%, respectively, and -0.08/-0.12/+2.1pct year-on-year, respectively. The sales/management/R&D expense ratio was well controlled, and the financial expense ratio was mainly affected by fluctuations in exchange profit and loss. Under the combined influence, net profit margins for 2024Q1/2024Q2/2024Q3 were +2.87/-4.89/-3.29pct year-on-year, respectively. Profit margins were mainly due to increased exchange losses and a decrease in US dollar interest. Excluding exchange rate effects, profit margins are expected to remain stable.

Risk warning: Overseas demand is falling rapidly, raw material costs are rising, new business expansion falls short of expectations, etc.