Key points of investment

Incident: In the first three quarters of 2024, the company achieved operating income of 2.982 billion yuan, a year-on-year increase of 27.73%, net profit to mother of 0.141 billion yuan, an increase of 1268.19% year-on-year, and net profit after deducting non-return net profit of 36.3948 million yuan, an increase of 471.39% year-on-year.

Inventory pressure on the laptop industry chain gradually eased. The AIPC era gradually eased. The AIPC era gradually eased. The company achieved operating income of 1.105 billion yuan, a year-on-year increase of 20.40%, net profit of 0.114 billion yuan, a year-on-year increase of 346.19%, net profit after deducting non-return to mother of 20.6429 million yuan, a year-on-year decrease of 19.53%, gross profit margin of 16.94% year-on-year, and +1.26pct. On the one hand, the sharp increase in net profit due to an increase in revenue, and on the other hand, the proceeds from the subsidiary's Chunqiu Nanchang equity transfer arrived in the account. Overall, the third quarter of this year is still in the stage of upgrading from traditional PCs to AI PCs. The pace of preparation of terminals and industrial chains has not reached a good balance, putting some pressure on the company's asset impairment loss, and the decline in the US dollar exchange rate in the third quarter dragged down the company's gross margin to a certain extent. Financial expenses also increased dramatically due to the increase in exchange losses, compounded by the one-time expenses of manual dismissal in Nanchang in the spring and autumn. This is the only place where the US and China are lacking.

The increase in the company's revenue and increase in gross margin reflects to some extent that the pressure on downstream laptops to be removed from inventory is gradually easing. As AI PC products are sold one after another, the recovery in the laptop market is expected to gradually strengthen. As a leading global supplier of laptop structural components, the company is expected to fully benefit from an integrated platform with processing and production capacity for various materials such as plastics, aluminum alloys, and magnesium alloys.

AIPC and the lightweight trend of new energy vehicles are boosting the magnesium alloy structural parts market. In the field of notebook computers with a second growth curve in spring and autumn, the demand for lightweight structural parts has always existed. Their materials have evolved from plastic in the past to aluminum alloys, and are currently being further upgraded to lightweight materials such as magnesium alloy and carbon fiber. It is foreseeable that in the future, AI PC requirements for power consumption, heat dissipation, etc. will continue to increase. As batteries and cooling structures increase, in order to control the weight of the entire laptop, the exterior structural parts will need to achieve further weight reduction without affecting the heat dissipation of the whole machine. In the field of new energy vehicles, in order to improve range and resolve mileage anxiety, it is also undergoing a process of lightweight upgrading.

Whether it's AIPC or new energy vehicles, the use of magnesium alloy structural parts is one of the important ways to achieve weight reduction: in the field of notebook computers, with the continuous upgrading and maturity of post-processing processes, the shortcomings of magnesium alloy structural parts in terms of aesthetic appearance are gradually being overcome. For example, the ThinkBook13x Gen 4 with AI enhanced functions launched by Lenovo at the beginning of the year, the high-gloss magnesium stainless structural parts used in the field of new energy vehicles have enhanced visual effects through post-processing; in the field of new energy vehicles, central control screen back covers, CCB beams, headlight structures, steering wheel frames, motor cases, etc. Magnesium alloys have been used in many structural parts, and as new environmentally friendly processing techniques continue to mature and the process size continues to increase, magnesium alloy structural parts have a trend of further penetration.

Chunqiu Electronics has been in a leading position in the field of magnesium alloy semi-solid injection molding processes in the past two years. Whether in terms of mold development, structural parts preparation, and post-processing, it has strong capabilities. In terms of customer development, as a global supplier of laptop exterior structural parts, the company has close cooperative relationships with first-tier brand manufacturers, and the automotive sector has signed a strategic cooperation agreement with Desai Xiwei. Overall, the company's magnesium alloy structural parts business is entering a stage of rapid growth, which is an important support for the company's second growth curve.

Investment advice: The company's net profit for 2024-2026 is expected to be 0.186 billion, 0.22 billion, and 287 million yuan, respectively. The current stock price corresponds to PE of 27.18, 23.03, and 17.66 times, maintaining the purchase rating.

Risk warning: 1. The recovery in notebook demand continues to slow down; 2. AI PC promotion is insufficient; 3. The penetration of magnesium alloy structural parts of new energy vehicles falls short of expectations.