Incident: The company released its report for the third quarter of 2024 on 2024/10/29, achieving operating income of 0.851 billion yuan, -8.29% year on year, net profit of 0.146 billion yuan, -28.47% year on year; net profit without return to mother 0.145 billion yuan, or -25.42% year on year.

2024Q3's profit margin increased month-on-month, but it was still pressured by domestic market demand: in 2024Q3 alone, the company achieved operating income of 0.274 billion yuan, -13.11% YoY, -4.92% month-on-month, and net profit to mother 0.049 billion yuan, -28.28% YoY and +5.81% month-on-month. On the profit side, the company's 2024Q3 gross margin and net margin were 38.72%/17.64%, respectively, -0.70/-3.71 pct, and +2.81/+1.61pct month-on-month, mainly due to 1) challenges posed by the domestic market, sales scale declined, but costs were fixed; 2) in the price reduction cycle, profit margins rebounded month-on-month in the third quarter, and are expected to pick up further with the investment of new production capacity.

The company gradually released production capacity, relied on technical advantages, and deepened its global layout: the company is a global supplier of machine parts, has casting and machining facilities, and cooperates closely with global customers. The company will 1) continue to release production capacity for the “High-Precision Mechanical Parts Production and Construction Project” project to improve large-scale production efficiency; 2) deepen the global layout, establish a Mexican factory, and work with American AMR to meet the needs of downstream customers in the global supply chain and shorten the product supply cycle.

Investment advice: We expect the company to achieve operating income of 1.225/1.57/2.011 billion yuan and net profit to mother of 0.212/0.309/0.401 billion yuan in 2024-2026. The corresponding PE was 17.08/11.72/9.03 times, respectively, maintaining the “gain” rating.

Risk warning: risk of deterioration of the macroeconomic environment, risk of downstream demand falling short of expectations, risk of subsidiary consolidation falling short of expectations, risk of fluctuations in raw material prices, risk of exchange rate changes