3Q24 results fell short of our expectations

The company announced 3Q24 results: revenue of 1.178 billion yuan, down 2.16% year on year and 5.85% month on month; net profit to mother of 46.68 million yuan, down 53.02% year on year and 32.68% month on month; after deducting non-net profit of 33.8 million yuan, down 67.08% year on year and 25.68% month on month. Non-recurring profit and loss were mainly government grants and investment income. The company's 3Q24 performance fell short of our expectations, mainly due to declining production capacity and low gross margin expectations.

Development trends

3Q24 revenue declined slightly year-on-month, and gross margin was under pressure due to rising production capacity. 3Q24's revenue fell 2.16%/5.85% month-on-month, respectively. We judge that the main reason was the decline in mobile phone business revenue for functional parts and precision structural components. The 3Q24 company's gross margin decreased by 6.08pp/2.32ppt to 20.87% month-on-month, respectively. We judge that it was mainly dragged down by rising production capacity in US factories, hydrogen fuel cell metal bipolar plate production lines, etc. Looking forward to the future, we are optimistic that the gradual restoration of the company's share in the next generation of products for specific customers will drive revenue growth, and that the scale effect will show an increase in profitability after the production capacity climb is completed.

Continued R&D investment is long-term, and we are optimistic about the development of emerging businesses such as high-power wireless charging and hydrogen fuel cells. 3Q24 R&D expenses increased 12.64% year on year to 0.102 billion yuan, R&D expenses increased 1.13ppt to 8.65% year on year, and the company maintained a high R&D investment layout for a long time. According to the announcement, in September 2024, the company increased its capital to Ansteek by 14 million yuan through self-financing, and the shareholding ratio of Ansteek increased from 55% to 71.58%. We are optimistic about the continued development of the company's new business. According to the announcement, as of August 2024, the company's hydrogen fuel cell metal bipolar plate has completed the construction of a full-process process production line and has obtained customer project targets. Hydrogen fuel cell membrane electrode products are actively cooperating with customers to sample and test, and progress is progressing smoothly.

We are optimistic about a further recovery in consumer electronics demand, as well as the expansion of production capacity and new business development in the new energy business.

According to IDC, global smartphone shipments are expected to increase 5.8% year over year to 1.23 billion in 2024. We are optimistic that the company's revenue for functional parts and precision structural parts will improve month-on-month as demand for terminals recovers and specific customer share recovers. In terms of the NEV business, we are optimistic that the company's overseas supply chain delivery capacity will be effectively improved as overseas factories are put into operation one after another. In terms of new business development, the company continues to promote new businesses such as hydrogen fuel cell core components and new energy wireless charging systems.

Profit forecasting and valuation

Considering that rising production capacity is dragging down gross profit margins, the 2024/2025 net profit forecast was lowered by 27.2%/9.7% to 0.292 billion yuan/0.434 billion yuan. The current stock price corresponds to 35.5 times/23.8 times P/E for 2024/2025. Maintaining an outperforming industry rating, taking into account profit forecast adjustments and an upward shift in the industry valuation center, keeping the target price of 16.0 yuan unchanged, corresponding to 36.2 times/24.3 times P/E in 2024/2025, with 1.9% upside compared to the current stock price.

risks

Demand for consumer electronics is sluggish; NEV customer shipments fall short of expectations.