3Q24 results are in line with our expectations

The company announced its 2024 three-quarter report: 1-3Q24 revenue of 1.857 billion yuan, -15.72% YoY; net profit to mother 0.328 billion yuan, -27.13% YoY. Single 3Q24's revenue was 0.627 billion yuan, -7.35% YoY; net profit to mother was 0.106 billion yuan, +0.31% YoY, in line with our expectations.

Development trends

Demand in the pan-electronics industry is improving, and the decline narrowed marginally. The 3Q24 company's revenue was -7.35% year-on-year, and was still affected by pressure from demand for new energy lithium batteries and photovoltaics, but the decline narrowed to single digits in the third quarter, and there was an improvement from month to month; we judge that 3Q24's performance by industry continued to diverge,? Pan-electronics sector: Demand in China's consumer electronics market recovered moderately in the first three quarters of 2024, and demand in the 3C mobile phone industry increased; at the same time, the company continued to develop its semiconductor business. We believe that the company's semiconductor business base is small and has great potential for growth;

New energy sector: Due to the contraction in downstream demand for lithium batteries and photovoltaics, the sector's performance is still under pressure. We believe that with the optimization of production capacity in the lithium battery industry and the PV industry going overseas, demand in the new energy sector is expected to gradually pick up.

Profitability fluctuates in the short term and is expected to rise steadily in the long term. 3Q24 gross profit margin was 35.05%, -0.55ppt, mainly affected by factors such as falling product prices, rising raw material costs, and changes in industry structure; sales/management/R&D/finance expense ratios were 5.25%/7.30%/3.81%/-0.29%, respectively, down 0.67/0.24/1.60/0.16pct year on year, with remarkable cost control results; 3Q24's net profit margin was 16.8%, +1.3 pct year on year.

Overall improvement in management capacity. From 1 to 3Q24, net operating cash flow was 0.61 billion yuan, up 256% year on year, sales payback increased, and the net present ratio increased from 37.9% in the same period in 2023 to 185.78%. The number of accounts receivable turnover days from 1 to 3Q24 increased by 5.67 days to 118.44 days, achieving a month-on-month improvement. The number of inventory/accounts payable turnover days decreased by 8.12 days/8.87 days to 111.47 days/92.56 days, respectively.

Profit forecasting and valuation

We keep our 2024/2025 profit forecast unchanged, and the current stock price corresponds to 27.9x/24.7x P/E 2024/2025. Maintaining an outperforming industry rating, due to the upward trend in the industry valuation center, we raised our target price by 49.7% to 30.89 yuan, and switched to 2025, corresponding to 28.5 xP/e in 2025, which has 15.42% upside compared to the current stock price.

risks

Demand fell short of expectations, the competitive environment deteriorated, and production expansion fell short of expectations.