1-3Q24 met our expectations

Boshi Co., Ltd. announced 3Q24 results: 3Q24 operating income of 0.71 billion yuan (up 20.2% year on year) and net profit of 0.18 billion yuan to mother (up 85.1% year on year). The company's profit and cash flow improved markedly in the third quarter, in line with our expectations.

3Q24 gross margin improved month-on-month. The company's gross margin of 1-3Q24/3Q24 was -2.5/-1ppt to 34.1%/36.1% year-on-year, mainly affected by solid material equipment. Judging from the quarterly trend, 3Q24 gross margin increased 1.9ppt month-on-month.

Endogenous management is steady, and profitability is maintained. In 2024, the market is generally worried that process automation companies will face insufficient demand, putting pressure on profits. However, the company's 1-3Q24 net profit margin fluctuated only slightly by -0.8ppt year-on-year, reflecting strong profit resilience.

Operating cash flow is constantly being optimized. The company's net operating cash flow for the first three quarters was 0.45 billion yuan (Q3 contributed 0.32 billion yuan), with a revenue ratio of 85.8%. Judging from the quality of operations, the company's inventory turnover rate has increased and the business cycle has been shortened.

Development trends

An employee stock ownership plan was released for the first time to share development results. The company announced the 2024 employee shareholding plan at the end of September 2024. 1) core key employees (no more than 100 people) were unlocked in December and 18; 2) 7.2 million shares (0.70% of the total share capital) were granted. The share source was the company's repurchase, which was completed in March 2024. 3) The price is 5.79 yuan/share, and the board of directors reviewed and approved 50% of the average price for the previous 20 trading days. 4) Based on the average net profit of the company from 2021 to 2023, exceeding the base in 2024/2025 will unlock the company's indicators.

Humanoid robots are progressing slowly in 2024, and we look forward to catalyzing next year. Up to now, the company is still in the process of developing principle prototypes, including simulation verification of motion control algorithms and physical verification of navigation planning algorithms. Given the delay in the 2024 prototype release, we recommend focusing on progress from 0 to 1 in 2025.

Profit forecasting and valuation

Our net profit for 2024/2025 remains unchanged, and the current stock price corresponds to 2024/2025 P/E of 26.2/24.2x. Considering the recent shift in A-share growth style, we raised the company's target price by 20% to 16.8 yuan, corresponding to 28x P/E in 2025, with 15.3% room to rise, and maintain an outperforming industry rating.

risks

Petrochemical capital expenditure supports the risk of continuing downside, and the risk that humanoid robots will fall short of expectations.