Key points of investment

Q3 The growth rate of net profit to mother was corrected in a single quarter. The inflection point of the performance was that the company achieved revenue of 1.857 billion yuan, -15.72% year over year; achieved net profit to mother 0.328 billion yuan, -27.31% year over year; and realized net profit without deduction of 0.324 billion yuan, or -28.05% year over year. The decline in the company's net profit to mother in the first three quarters of 2024 was greater than the decline in revenue, mainly due to the year-on-year increase in the company's gross margin compounded by a year-on-year increase in the expense ratio.

Looking at a single quarter: 2024Q3 achieved revenue of 0.627 billion yuan, or -7.35%, which was narrower than the year-on-year decline of -19.42% in revenue in the first two quarters of 2024; achieved net profit to mother of 0.106 billion yuan, +0.31% year over year, and net profit to mother corrected year-on-year growth rate in a single quarter; achieved net profit without deduction of 0.104 billion yuan, or -0.72% year over year.

Profitability declined, and sales & management expense ratios increased. The company's gross margin for the first three quarters of 2024 was 35.44%, -3.92 pct year on year. 2024Q3's gross margin in a single quarter was 35.05%, -0.55pct yoy and -1.06pct month-on-month. The decline in the company's gross margin was mainly due to a slight rebound in the downstream lithium battery sector compared to 24H1, which dragged down the overall gross margin level.

Net sales margin for the first three quarters of 2024 was 17.67%, -2.82pct year on year. 2024Q3's net sales margin in a single quarter was 16.85%, +1.29pct year over year, and -1.46pct month-on-month.

In terms of the period expense ratio, the company's expense ratio for the first three quarters of 2024 reached 15.83%, +0.87pct year on year. Among them, the sales/management/ financial/ R&D expense ratio was +0.80pct/+1.27pct/-1.24pct/+0.04pct year over year. The increase in the management expense ratio was mainly due to an increase in employee remuneration. The decrease in the financial expense ratio was mainly due to interest on bank time deposits.

With the deepening of the FA business layout & optimization of the downstream structure, the FB business is expected to enter a period of rapid growth 1) The company continues to deepen the FA business layout: The main measures include: ① Continued development of product categories:

By the end of 2024H1, the company had successfully developed an FA factory automation parts product system covering 226 categories, 3880 subcategories, and more than 1.8 million SKUs; ② Strengthening supply chain management capabilities: The company has established a product supply system with agile manufacturing for homemade supply, OEM/ODM supply and intensive procurement. The overall delivery rate in 2023 reached 96.85%, +1.8 pct compared to the previous year.

2) Downstream structure optimization: The company's downstream structure continues to be optimized, and the share of downstream revenue from PV and new energy sources with low gross margins continues to decline. Among them, the downstream share of PV fell from 15% in 2023 to 11% in 2024H1, and the downstream share of new energy fell from 31% in 2023 to 17% in 2024H1.

3) The FB business grew rapidly, opening up a new growth curve: In 2023, the company's FB business grew rapidly, achieving revenue of 0.156 billion yuan, +117% over the same period. The company upgraded and developed an automatic quotation system and an automatic programming system to provide customers with more intelligent “custom processing”.

Profit forecast and investment rating: Considering that the recovery of the manufacturing industry was lower than expected, we lowered the company's 2024-2026 net profit forecast to 4.59 (original value 6.30) /5.53 (original value 7.92) /6.65 (original value 10.42) billion yuan, respectively. The current stock price corresponds to dynamic PE of 34/28/23 times, respectively. Considering the gradual transformation of the company's revenue structure and long-term future growth, we maintained an “gain” rating.

Risk warning: Raw material prices fluctuate, manufacturing recovery falls short of expectations, and industry competition intensifies.