Key points of investment

The company announced the 2024 three-quarter report. 24Q1-3 revenue was 0.62 billion yuan, yoy +24.6%, and net profit to mother was 0.008 billion yuan, reversing losses year-on-year. After deducting net profit of non-return to mother of -0.002 billion yuan, losses narrowed year-on-year. 24Q3 revenue was 0.21 billion yuan, yoy +1.2%, qoq -3.1%; net profit to mother was 0.007 billion yuan, reversing losses year-on-year, qoq -22.3%; net profit without return to mother was 0.003 billion yuan, reversing losses year-on-year, qoq -53.6%. There was pressure during the Q3 month-on-month phase, and profitability continued to improve.

The 24Q3 off-season sales phase was weak, and the average price of electronic cloth increased by 24Q1-3. The company's electronic cloth sales were 0.15 billion meters, yoy +16.2%, and the production and sales rate was 104%; of these, 24Q3 sales were 49.1 million meters, yoy -13.0%, and qoq -6.7%. The average price of 24Q1-3 electronic cloth is 3.7 yuan/meter, yoy +1.8%; of these, 24Q3 average price is 3.8 yuan/meter, yoy +9.2%, and QoQ +5.1%. Due to the impact of the 24Q3 off-season, the company's sales volume was under pressure from month to month, and the average price improved year over month. 24Q1-3's average purchase price of e-yarn is 17.9 yuan/kg, yoy +24.6%; 24Q3 average purchase price is 17.8 yuan/kg, yoy +25.0%, qoq -4.7%.

Gross margin continued to improve month-on-month, and profitability continued to increase

24Q1-3 comprehensive gross profit margin 16.5%, yoy+8.7pct; 24Q3 gross profit margin 19.0%, yoy+13.8pct, qoq+1.3pct. After the Huangshi Honghe cloth factory was put into operation, the increase in glass fiber cloth production and sales had an obvious effect of diluting costs. The 24Q1-3 cost rate was yoy-2.7 pct to 16.8%. 24Q1-3 net profit margin 1.2%, yoy+10.0pct; Q3 net profit margin 3.3%, yoy+14.2pct, qoq-0.8pct.

High-end electronic faucets continue to grow, maintaining the “buy” rating. We expect the company's operating income in 2024-2026 to be 0.8/0.97/1.18 billion yuan, yoy +21.1%/21.3%/21.3%; net profit to mother will be 0.02/0.05/0.12 billion yuan, respectively, turning a year-on-year loss into profit in 24 years, and yoy +124.7%/144.5% in 25-26, respectively. EPS was 0.02/0.05/0.13 yuan respectively. The company has the world's leading high-end electronic cloth manufacturing capabilities. The Huangshi Honghe project was put into operation to enhance its ability to supply microfine yarn and strengthen the company's competitiveness. At the same time, it is recommended to focus on the growth elasticity contained in continuous breakthroughs in the application of high-end electronic cloth in new fields. Maintain a “buy” rating.

Risk warning: demand falls short of expectations; competition increases risk; fluctuating raw fuel prices; risk of high supplier and customer concentration