Event: On October 29, 2024, the company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 1.371 billion yuan, +30.45% year over year; realized net profit of 0.079 billion yuan, +110.48% year over year; realized net profit of 0.074 billion yuan without return to mother, +128.64% year over year. Looking at a single quarter, 2024Q3 achieved operating income of 0.504 billion yuan, +44.56% year over year; realized net profit to mother of 0.034 billion yuan, +571.46% year over year; realized net profit after deduction of 0.031 billion yuan, or +728.57% year over year.

The company's profit level continues to improve. In terms of profitability, in the first three quarters of 2024, the company achieved a gross profit margin of 15.08%, +1.70pct year on year, achieving a net profit margin of 5.73% and +2.18pct year on year; 2024Q3 achieved a gross profit margin of 15.16%, +2.48pct year on year, achieving a net profit margin of 6.69%, or +5.25pct year on year.

In terms of cost ratio, 24Q3 company sales/management/ R&D/ finance rates were 0.98%/2.28%/3.18%/1.85%, respectively, -0.39pct/-0.91pct/-1.15pct/-0.25pct. The reasons for the increase in profit levels include: the company strengthened lean management of original products, increased large-scale effects brought about by the smooth commissioning of new production lines, and improved operational efficiency brought about by digital transformation.

Revenue growth benefits from actively developing new products and overseas market space. Refrigeration, HVAC, and power and electricity are the company's basic business. On this basis, the company accelerated the pace of development of new circuits for electronics and new energy vehicles, and promoted revenue growth for new products such as silver paste and tin-based solder based on copper-based solder and silver solder. In terms of overseas business, the company is actively promoting the “Huakai Global” internationalization strategy and expanding the sales scale in overseas markets.

The company's profit level has increased significantly due to large-scale effects and management optimization. The company's “Intelligent Manufacturing Funding Project with an Annual Output of 4,000 Tons of New Green Brazing Materials” has been gradually put into operation and yielded benefits. Compared with the original production line, the newly built production line has significant advantages in terms of production efficiency, quality, and cost. The large-scale effect of the release of new production capacity is one of the important reasons for the increase in the company's gross margin. At the same time, the company insists on promoting lean production, digital transformation and process transformation to ensure operational efficiency and efficiency while expanding the scale of the company's operations. Furthermore, since the company purchases raw materials earlier than the time of product settlement, the rise in raw material prices will raise the company's gross margin level to a certain extent. Thanks to large-scale effects and management optimization, the company's gross margin level has increased significantly due to the rise in raw material (copper, silver) prices since 2024.

Investment advice: We expect the company to achieve revenue of 1.82, 2.251, and 2.758 billion yuan in 2024-2026, with year-on-year growth rates of 28.6%, 23.7%, and 22.5%, respectively, and net profit to mother of 0.108, 0.13, and 0.151 billion yuan. The year-on-year growth rates are 159.7%, 20.7%, and 15.4%, corresponding PE is 19, 16, and 14 times, taking into account the steady growth of the company's medium temperature soldering materials business, and maintaining the “recommended” evaluation grade.

Risk warning: risk of a sharp drop in raw material prices; risk that demand in the electronics and NEV industry falls short of expectations; risk that new product development progress falls short of expectations; risk of negative cash flow from operating activities; risk of exchange rate risk.