Key points of investment

Downstream demand picked up after 3C, and Q3 performance resumed positive growth

In the first three quarters of 2024, the company achieved revenue of 0.276 billion yuan, up 8.64% year on year; net profit to mother was 0.059 billion yuan, down 18.85% year on year; net profit without return to mother was 0.053 billion yuan, down 21.02% year on year. Looking at the third quarter of a single quarter, the company achieved revenue of 0.104 billion yuan, up 25.59% year on year, up 14.44% month on month; net profit to mother was 0.022 billion yuan, up 1.63% year on year, up 34.61% month on month.

2024Q3's performance has resumed positive growth, mainly due to: 1) a low base in the same period in '23; 2) the recovery in demand in industries such as 3C has led to an increase in demand for industrial robots such as small six-axis and SCARA, which has led to an increase in demand for harmonic reducers. The profit growth rate is lower than the revenue growth rate. We judge that it is mainly due to the entry of new players in the industry, and competition is intensifying.

Increased industry competition & low capacity utilization hamper profitability

The company's gross sales margin for the first three quarters of 2024 was 39.5%, -2.2 pct year on year, mainly due to a slowdown in industry demand and increased competition. The company's gross sales margin for the third quarter of a single quarter was 38.1%, -2.42pct year-on-year, and -0.33pct month-on-month.

The company's net sales margin for the first three quarters of 2024 was 21.7%, -7.4pct year on year, mainly due to a decline in gross sales margin and an increase in the cost ratio during the period. The company's expense ratio for the first three quarters of 2024 was 21.4%, +11.3pct year on year; of these, sales/management (including R&D) /finance expenses were 3.5%/18.2%/-0.3%, respectively, and +1.1/+0.2/+10.1pct, respectively. The increase in sales expenses is mainly due to an increase in sales and exhibition expenses; the increase in the financial expenses ratio is mainly due to a decrease in monetary interest income. We believe that as downstream demand recovers and capacity utilization increases, the company's profitability is expected to begin to recover.

Humanoid robots open up long-term growth space, and mechatronic products increase market development efforts (1) Harmonic reducers: small load, high accuracy, and compact structure. They are mainly used in humanoid robots for rotating joints such as small arms, big arms, and hips. They are currently the best solution for humanoid robots. As the leading domestic harmonic reducer, the company is expected to fully benefit from the volume of humanoid robots.

(2) Mechatronic products: As industrial production develops in the direction of high precision, human-robot collaboration, and mobility flexibility, mechatronic integration is also being developed more and more widely in the technical route in the field of precision transmission devices as an industrial technology that can meet the above development trends. The company's mechatronic products and micro electrohydraulic servo products have gradually entered the market. At the same time, the company applied this new technology to the company's new products, such as high-end precision CNC turntables, hydraulic grinding heads, adaptive mobile special equipment, and high-end CNC machine tools. As the scale of the new products expands, it will help consolidate the company's leading position in the industry.

Profit forecast and investment rating: Considering the slow downstream recovery process, we lowered the company's net profit to mother in 2024-2026 to 0.73 (original value 1.10) /1.03 (original value 1.53) /1.44 (original value 2.12) billion yuan, respectively. The current stock price corresponds to dynamic PE 201/142/102 times, respectively. Considering the company's growth in the humanoid robot field, we still maintain the “gain” rating.

Risk warning: Industry competition intensifies, customer breakthroughs fall short of expectations, and new product development falls short of expectations.