Joyson Electronics announced 3Q24 results: revenue of 14.06 billion yuan (yoy -1.7% /qoq +1.9%) and net profit of 0.3 billion yuan (yoy +0.5% /qoq -7.7%), mainly due to weak global automobile demand (according to Marklines, 3Q24 global light vehicle sales -3%) and domestic joint venture brand sales pressure. 3q24's gross margin continued to increase by 0.2pp to 15.7% month-on-month, thanks to an increase in the gross margin of the automotive electronics business; the gross margin of the safety business remained around 14%. From an order perspective, 3Q24 received about 9.8/10.8 billion yuan in new car safety/automotive electronics orders. A total of 70.4 billion yuan of new orders were signed this year, with a gross margin of more than 20%. We believe there is still room for continuous improvement in gross margin (25/26E: 16.2/ 16.9%) due to subsequent high-margin new orders and overseas factory management and cost optimization. Maintain a “buy” rating.

Automobile safety business: The gross margin of new orders is relatively good, which is expected to support future profit improvements

3Q24 automotive safety business revenue 9.64 billion yuan (yoy-1.0/qoq +1.7%). The gross margin of the safety business is about 13.9% (yoy +2.6pp/qoq -0.1pp). Among them, gross margin in Europe, America, Japan and other regions all increased significantly. The company achieved year-on-year profit improvement by reducing raw material costs, optimizing supply chain strategies, reducing logistics costs, and improving factory efficiency. 1-3Q24 signed a new security business order of about 49.1 billion yuan, +44% compared to the same period last year. The company said that the cumulative gross margin of all new orders this year is basically above 20%. We believe that future volume of new orders can strongly support the increase in the gross margin of safe businesses.

Automotive electronics business: the product matrix continues to expand, and the ability to obtain orders from multiple business lines is strengthened

3Q24 automotive electronics business revenue of 4.42 billion yuan (yoy+0.9/qoq +2.1%). The gross margin of the electronic business was about 19.6% (yoy -0.7pp/qoq +1.0pp), and the gross margin was over 20% after excluding the impact of the reclassification of warranty funds. 1H24/3Q24 signed a new electronic business order of about 10.6/10.8 billion yuan. We have seen that the company has maintained a stable R&D investment scale, and has large technical reserves in various fields such as new energy, smart cockpit, and intelligent connectivity, and has acquired new business in emerging fields such as wireless charging, vehicle road cloud, digital keys, and all-in-one computers. The intelligent transformation of overseas electric power has been slow this year, putting some pressure on the company to pay early orders.

However, we are optimistic that the company is a global Tier 1 with a comprehensive technical layout, benefiting from the transformation of global automotive OEMs. Overseas electric intelligent models are launched one after another after 2H25, which is expected to bring better order fulfillment.

Target price of $21.04, maintaining buy rating

We lowered our 24/25/26E revenue forecast by 3/4/ 1% to 56.1/60.7/68.1 billion due to the weak global demand for automobiles and the company's high exposure to overseas business and joint venture brands. Furthermore, considering the high gross margin of new orders and the continuous optimization of the efficiency/cost structure, we are still optimistic about the ability to continuously improve gross margin. In the end, we lowered our net profit from 24/25/26E to 1.31/1.64/2.15 billion yuan (previous value 1.49/1.98/2.37 billion yuan). Based on SOTP, considering that the company's overseas share is more affected by global macroeconomic uncertainty and the slowdown in pure electricity overseas, it is predicted that the automotive electronics/safety business will be 0.69/0.48EPS in 2025, corresponding to 20.5/14.5X PE (taking a 10% discount compared to the company's PE average), with a target price of 21.04 yuan, maintaining a “buy” rating.

Risk warning: Profitability recovery is less than expected, and overseas car companies' intelligent progress is slow.