Incident: The company released its 2024 three-quarter report, and the results were in line with expectations. In the first three quarters of 2024, the company achieved operating income of 12.194 billion yuan, a year-on-year increase of 1.06%; net profit to mother of 0.638 billion yuan, a year-on-year decrease of 30.92%; net profit after deducting non-attributable net profit of 0.572 billion yuan, a year-on-year decrease of 21.47%. In the third quarter of 2024, the company achieved operating income of 4.216 billion yuan, a year-on-year decrease of 0.85%; net profit to mother of 0.245 billion yuan, a year-on-year decrease of 23.03%; net profit after deducting non-return to mother of 0.224 billion yuan, an increase of 2.80% year-on-year.

Company reviews:

2024Q3 revenue changes were relatively stable, and net profit after deducting non-return to mother increased. 2024Q3's revenue fell by 0.85%, net profit to mother fell by 23.03%, and net profit after deducting non-return to mother increased by 2.80%. The main reasons are: 1) Affected by rising commodity prices, 2024Q3 gross margin fell 0.48 pct to 25.00% year on year; 2) non-recurring profit and loss such as government subsidies were high in the third quarter of last year (0.101 billion yuan), and after excluding the impact of non-recurring profit and loss, the changes on the revenue and profit side were more consistent; 3) the cost side control was good and remained at a low level. The 2024Q3 sales/management/R&D/finance expense rates were 4.96%/7.58%/3.93%/1.33%, respectively, +0.10/- 0.84/+1.13/ -1.03pct, a total reduction of 0.64pct

Starting in the fourth quarter of this year, the company is expected to benefit from the implementation of the equipment renewal policy. On July 25, the National Development and Reform Commission and the Ministry of Finance issued “Certain Measures to Strengthen Support for Large-scale Equipment Renewal and Consumer Goods Trade-In”, which coordinates ultra-long-term special treasury bond funds of around 300 billion yuan to increase support for large-scale equipment renewal and consumer goods trade-in; it is mentioned that the scope of support will be extended to equipment renewal in the fields of energy and electricity, old elevators, etc., as well as energy saving, carbon reduction and safety transformation in key industries.

We expect that starting in the fourth quarter of this year, the policy will gradually be implemented, leading to an increase in demand for industrial motors and household motors.

The low-altitude economy sector continues to advance, leading the industry in technological breakthroughs and standard setting. On October 17, Wolong Group signed a strategic cooperation framework agreement with Shanghai Jiao Tong University. The two sides will jointly build an electric avionics propulsion system research center and carry out close strategic cooperation in the fields of aerospace, electric ships, energy and power, power electronics, mechanical systems, special materials, etc. In the future, they will take the opportunity to jointly build engineering research centers and laboratories in various disciplines. According to questions and answers from the company's investors, several R&D projects in cooperation with mainstream OEMs are currently progressing steadily. We believe that the electric drive system is the core component of electric aircraft. The safety and performance requirements are high. The company's low-altitude core component track has a first-mover advantage and scarcity.

Maintain profit forecasts and “buy” ratings. We maintain the 2024-2026 net profit forecast of 0.917, 1.095, and 1.18 billion yuan, corresponding PE of 19, 16, and 15X. As the world's leading motor manufacturer, the company's main motor business continues to grow steadily; the forward-looking layout of flying vehicle motor drive systems promotes the launch of the low-altitude industry. Maintain a buy rating.

Risk warning: macroeconomic and downstream sentiment risks, increased risk of market competition, risk of low-altitude economic implementation falling short of expectations; the company issued the “Notice on Receiving the Decision on Administrative Supervision Measures from the Zhejiang Regulatory Bureau of the China Securities Regulatory Commission” in September 2024 to pay attention to related risks.