Event: On October 25, 2024, Fluorite Network released its 2024 Q3 Report. In the first three quarters of 2024, the company achieved revenue of 3.963 billion yuan (+12.95%), net profit due to mother 0.375 billion yuan (-6.65%), after deducting non-attributable net profit of 0.368 billion yuan (-5.41%).

2024Q3 revenue is growing steadily, and we are optimistic about performance growth. 1) Revenue side: Looking at a single quarter, the 2024Q3 company's revenue was 1.379 billion yuan (+12.73%), achieving double-digit growth, or driven by the smart lock category of the star business maintaining rapid growth; the service robot business may maintain a relatively rapid growth rate, which is expected to become an important growth point in the medium to long term; we judge that the smart home camera business is affected by operator channels to grow or be pressured, but the basic market is still stable. 2) Profit side: The net profit of 2024Q3 is 0.093 billion yuan (-34.85%), or due to increased raw material cost pressure and cost investment. It is expected that new products will continue to be iterated and launched, and the scale effect will contribute to performance growth.

2024Q3 profitability is under pressure in the short term, and cost-side investment supports medium- to long-term development. 1) Gross profit margin:

The 2024Q3 gross profit margin of 42.01% (-2.29pct) may be due to high raw material costs, product restructuring, high growth in new categories such as intelligent service robots accompanied by high investment, increased share of overseas business, and increased freight costs. 2) Net profit margin: 2024Q3 net profit margin 6.75% (-4.93pct). The decline was higher than the gross profit margin, and the cost investment increased. 3) Expense side: 2024Q3 sales/management/R&D/finance cost rates were 17.05/4.05/14.24/ -0.24%, respectively, compared to +2.05/+0.47/ -0.29/ -0.46pct, respectively. The increase in sales expenses or marketing expenses due to online resource investment, new channel development, etc., the management fee rate increased or was generated by the entry of new buildings, and additional personnel for business development also increased expenses. We believe that the associated investment may be beneficial to long-term development.

The actual controller increased the company's shares and has sufficient confidence in long-term development. On October 18, 2024, Telecom Investment, a wholly-owned subsidiary of the company's actual controller Telecom Group, plans to increase its holdings of the company's shares within 6 months through centralized bidding and bulk transactions using its own capital or self-financing. The amount is not less than RMB 0.2 billion (inclusive) and not higher than RMB 0.4 billion (inclusive). The actual controller's increase in holdings shows confidence in future development and is optimistic about long-term investment value.

Investment suggestions: On the industry side, product privacy capabilities continue to be upgraded. The SHC industry ceiling is expected to break through again. The smart door lock pattern evolves or brings new demand for the face lock category. AI interactive large model technology is developing rapidly, the smart home industry has broad prospects, and the medium- to long-term intelligent control+wearables+robotics industry is gaining momentum. On the corporate side, under the new “2+5+N” ecosystem, AI and fluorite cloud dual-core drivers, video vision capabilities build hardware advantages, and the proportion of highly profitable IoT cloud platform structures has increased, and the company's revenue performance is expected to continue to grow. We estimate that in 2024-2026, the company's net profit to mother will be 0.645/0.802/0.995 billion yuan, and the corresponding EPS will be 0.82/1.02/1.26 yuan, respectively. The PE corresponding to the current stock price is 38.04/30.58/24.66 times, respectively. Maintain a “buy” rating.

Risk warning: risk of data security and personal information protection, risk of new business expansion falling short of expectations, risk of global operation, risk of fluctuating raw material prices, etc.