Event: The company released its three-quarter 2024 report:

1) 24Q1-3: Revenue of 51.25 billion yuan, yoy +19.1%, net profit to mother of 3.9 billion yuan, yoy +0.5%, minus 3.25 billion yuan of non-return mother, yoy -7.4%. Gross profit margin 21.6%, yoy-3.2pct, net profit margin 7.7%, yoy-1.4pct.

2) 24Q3: Revenue 16.69 billion yuan, yoy -7.2%, qoq -2.5%, net profit to mother of 1.05 billion yuan, yoy -41.0%, qoq -14.2%, minus 0.82 billion yuan without return to mother, yoy -52.7%, qoq -23.7%. Gross profit margin 21.7%, yoy-3.5pct, qoq+0.8pct, net profit margin 6.4%, yoy-3.6pct, qoq-0.7pct.

24Q3 gross margin improved month-on-month, and foreign exchange affected profit performance. As the impact of raw material price increases was eliminated, 24Q3 gross margin rebounded, +0.8 pct. On the cost side, large fluctuations in the US dollar exchange rate at the end of September caused exchange losses, and 24Q3 financial expenses reached 0.19 billion yuan, affecting profit performance. Looking ahead to 24Q4, the launch of new products combined with overseas holiday promotions such as Christmas is expected to drive a month-on-month increase in sales, while falling prices of raw materials such as storage are expected to drive a continuous improvement in gross margin.

24Q3 smartphone shipments remained flat month-on-month, and new markets grew rapidly. The 24Q3 company shipped more than 25 million smart phones, which was basically flat from month to month, with a global market share of about 8%. Looking at sales in the first three quarters, sales in various regions were differentiated. Sales in the main markets of Africa and Pakistan were +15% and +100%, respectively, while sales in India and Bangladesh declined, and sales in other new markets were +37% year-on-year. In the future, the company is expected to continue to benefit from increased smartphone penetration in major markets such as Africa and increased market share in new markets such as Southeast Asia, the Middle East, and Latin America.

Explore the development potential of end-side AI and continue to promote high-end products. The company continues to promote high-end products and integrated end-side AI development. In mid-September, the second-generation PHANTOM series folding screen flagship models PHANTOM V Fold2 and vFlip2 were released, equipped with new TECNO AI, including AI translation, writing, summary, and Ella AI voice assistant.

Investment advice: The company is expected to achieve net profit of 5.55/6.56/7.56 billion yuan in 2024-26, corresponding to PE valuation 19/16/14 times, maintaining a “buy” rating.

Risk warning events: terminal demand falls short of expectations; development of new markets falls short of expectations; risk of untimely updates of information used in research reports.