24Q3 performance was high year-on-year, and gross margin declined due to the gradual expansion of new business. The company released the 2024 three-quarter report. The company achieved revenue of 1.31 billion yuan, +60.80% year over year; net profit to mother of 0.191 billion yuan, +62.87% year over year; net profit after deducting non-return to mother of 0.185 billion yuan, +67.37% year over year. In terms of profitability, the company's gross profit margin for the first three quarters of 24 was 29.79%, -1.90pct year on year; net profit margin for the first three quarters of 24 was 14.56%, +0.19pct year on year.

24Q3's revenue was 0.507 billion yuan, +47.08% YoY/+16.54% month-on-month; net profit to mother 0.067 billion yuan, +24.67% YoY, +8.20% month-on-month. In terms of profitability, the company's 24Q3 gross profit margin was 29.02%, -3.63pct/month-on-month -0.93pct; 24Q3 net margin was 13.30%, -2.39pct/month-on-month -1.03pct. The company's profitability declined month-on-month, or gradually expanded due to new business (airbags, steering wheels), but gross margin was lower than the main business (seat belt assembly and parts).

The 24Q3 company's three-fee rate (excluding R&D) was 6.89%, +0.04pct/month-on-month +0.83pct. Among them, the sales cost/ management expenses/ financial expenses ratio reached 1.89%/3.99%/1.01%, respectively, -0.07pct/-0.01pct/+0.12pct year-on-year. R&D expenditure rate 5.27%, +0.36pct year-on-year.

Downstream customer sales are improving, helping the company's performance increase year over year

Chery and Geely were the company's top two customers in the first half of 2023, and their sales volume continued to grow rapidly in 24Q3 compared to the same period last year. Geely 24Q3 sold 0.534 million vehicles, +15.8% year over year and +11.2% month over month. Chery 24Q3 sold 0.652 million vehicles, +27.4% YoY/+14.2% YoY. In addition, the company also supplies models such as Ideal L6 and Nezha L. Core customer sales continue to improve, which is expected to lay a good foundation for the company's performance.

Set up a factory in Malaysia to accelerate international layout

On May 27, 2024, the company announced that it intends to establish a wholly-owned subsidiary in Malaysia and invest in the construction of a production base. It plans to invest no more than 50 million yuan in the initial phase of the project. The first phase of the investment is planned according to the 0.5 million set/year safety system assembly. Additional investments will be made in later stages, including introducing upstream component processes and production lines and increasing assembly production capacity. It is planned to reach mass production in the second half of 2025. On July 12, the company announced that it had completed the registration procedures for subsidiaries in Singapore and Malaysia, and received registration certificates issued by local administrative authorities. This investment is based on the overseas production capacity layout requirements of G customer and S customer projects, as well as the overall strategic considerations of the company's second five-year plan. It helps the company improve its industrial layout, eliminate geographical factors, create global delivery capabilities, and better meet the order needs of international customers.

Profit forecast and investment advice: We expect the company to achieve net profit of 0.286/0.352/0.47 billion yuan in 2024-2026. The current market value corresponds to 26/21/16 times the 24-26 P/E, maintaining a “buy” rating.

Risk warning: rising raw material prices; macroeconomic fluctuations; sales of new energy vehicles falling short of expectations; rising production capacity falling short of expectations; intensifying industry competition.