Incident: On October 29, 2024, Hengshuai Co., Ltd. (300969.SZ) released its report for the third quarter of 2024: Q3 achieved operating income of 0.241 billion yuan, -8.69% year over year, 9.01% month on month; net profit of 0.048 billion yuan, -18.39% year on year, -5.83% month on month; after deducting non-net profit of 0.046 billion yuan, -18.76% year on month.

Core views:

Product revenue profit growth is under pressure, and the company's operating cost control performance is good 1) On the revenue side, the company's cleaning business was affected by industry trends and customer structure. Global light vehicle sales in the third quarter were -2.69%, of which the Chinese market was -7.86%; the company's cleaning systems were mainly supplied to the domestic market, directly supporting Tier 1 OEMs, and the market share of joint ventures declined as Hengshuai's core customers, further affecting revenue volume. In terms of overseas production capacity layout, some of the company's designated projects in the US factory have already entered the mass production climbing phase, and equipment commissioning at the Thai factory is progressing smoothly, which will effectively support the company's subsequent order expansion.

2) Profit side: 24Q3 gross margin was 33.94%, -3.33 pct year over month, -2.26 pct. The company continued to expand high-quality customers, successively with new forces NIO and Xiaopeng; North American New Energy cooperated and industry competition intensified. The company adopted a price-for-quantity strategy and made certain price concessions in the third quarter. The company's cost control performance was good. Sales/management/finance/R&D expenses were 1.39%/5.63%/0.36%/3.21%, respectively, -0.83pct/-0.67pct/+2.15pct/-0.41pct. The company's financial expenses fluctuated due to changes in exchange rates.

Intelligent sensing systems show future potential

Robotaxi operates vehicles with a high number of sensors, and the OEM's high-end smart driving models are large. As commercial applications of autonomous driving such as L3+ class Robotaxi and unmanned express logistics cars are being implemented at an accelerated pace, the company's related products have been adapted and distributed through customers to terminals such as Waymo, Meituan, and North American new energy customers.

The motor business is growing steadily, and diversified layouts expand new markets

A variety of motor products have been developed in the four-door and two-cover motor business. These products are still in the penetration period, and the overall market capacity continues to expand. At the same time, the company is also actively exploring the application of motor products in other scenarios, such as types of motors related to comfort such as angle adjustment and massage in seats. In the context of consumption upgrades, there will be great demand in the future.

Investment advice:

Micromotors are the core technical capability. The cleaning business is developing on a large scale and forward-looking intelligent cleaning, and the industrial commercialization process is being accelerated; the motor business has a multi-category layout, taking advantage of the wave of intelligence. Based on industry trends and the company's operating conditions, we adjusted the profit forecast. Previously, the company's revenue for 2024 to 2026 was 1.14/1.442/1.856 billion yuan, and now the company's revenue for 2024-2026 is 0.987/1.17/1.461 billion yuan, respectively; the corresponding net profit to mother achieved in 2024-2026 was adjusted from 0.264/0.34/0.426 billion yuan to 2.29/2.76/3.19 yuan; 2024~ The corresponding PE for 2026 was 26.94/22.39/19.32x, maintaining the company's “buy” rating.

Risk warning:

1) Automobile sales fell short of expectations; (2) the intelligent development of automobiles fell short of expectations; (3) raw material costs rose; (4) overseas factory construction progress fell short of expectations.