The company achieved net profit of 0.007 billion yuan in the third quarter, a year-on-year loss. The company released its quarterly report for 2014. The first three quarters achieved revenue of 0.619 billion yuan, +24.55% over the same period, and realized a net profit of 0.008 billion yuan to mother. The year-on-year reversal of losses, after deducting non-return net profit of -0.002 billion yuan, a year-on-year decrease in losses. Among them, Q3 achieved revenue of 0.211 billion yuan in a single quarter, +1.20% year over year, and realized net profit attributable to mother/net profit of 0.007/0.003 billion yuan after deducting net profit from non-mother, all reversing losses year over year.

Q3 Electronics prices rose and volume fell, and demand for downstream terminal consumer electronics & AI servers was booming

The company achieved a double increase in volume and price of electronic cloth in the first three quarters. We estimate that electronic cloth sales reached 0.15 billion meters in the first half of the year, mainly due to the release of production capacity by Huangshi Honghe in the first half of the year. The average sales price of the company's electronic cloth reached 3.72 yuan/meter year-on-year in the first three quarters. It is expected that there will be a lot of price correction in Q3. Looking at a single quarter, the company's Q3 revenue/net profit to mother was -3.06%/-22.25%, respectively, mainly driven by the decline in sales volume. We estimate that Q3's electronic cloth sales volume was 49.1 million meters, -6.7%/-13.0% month-on-month, respectively.

On the price side, the average price of Q3 electronic cloth was 3.84 yuan/meter, +5.1%/+9.2% month-on-year respectively, achieving an upward restoration. The average purchase price of Q3 e-yarn was 17.8 yuan/kg, -4.7%/+25.0% month-on-year, respectively. The cost side was also optimized month-on-month. Downstream demand for the company's electronic cloth products is booming. In Q3, China's smartphone shipments were -4.0%/+3.2% month-on-year, respectively. New Android products are expected to be released intensively in Q4, and demand for consumer electronics upgrades is expected to be further boosted. In the future, as demand for products in new application fields such as AI phones increases, the company is expected to achieve greater performance flexibility with leading technical advantages.

Q3 Profitability increased significantly and cash flow improved markedly

The company's overall gross profit margin for the first three quarters was 16.45%, +8.74pct year on year. Among them, the overall gross profit margin for the Q3 quarter was 18.99%, +13.78/+1.26pct yoy, respectively. The cost ratio for the first three quarters was 16.84%, or 2.75pct year on year. Among them, sales/management/ R&D/finance expenses ratios were -0.01/-2.61/0.28/ -0.41pct year on year, respectively, and finally achieved a net interest rate of 1.25% and +10.01 pct year over year. Q3 net profit margin in a single quarter was 3.27%, +14.21/-0.81 pct yoy. The balance ratio at the end of 24Q3 was 44.06%, +0.36pct year over year. Net operating cash flow for the first three quarters was 0.089 billion yuan, +0.165 billion yuan year on year, revenue ratio of +6.27 pct year on year reached 89.30%, and current payment ratio of -0.84 pct year on year reached 21.08%. Cash flow improved significantly.

The supply capacity of high-end electronic cloth is leading in the world. Maintaining “additional” rating companies with world-leading high-end electronic cloth manufacturing capabilities, it is expected that domestic production will gradually be replaced in the high-end field. The company's net profit for 24-26 is estimated to be 0.025/0.08/0.12 billion yuan, maintaining an “incremental” rating.

Risk warning: Demand and the pace of commissioning of new projects are lower than expected, the risk of supplier and customer concentration, increased supply-side competition, and large fluctuations in raw material prices.