occurrences

The company released its 2024 three-quarter report. The company's total revenue for 2024Q1-3 was 4.94 billion yuan, -2.41% YoY; net profit to mother was 0.279 billion yuan, +11.13% YoY. Corresponding to total revenue of 1.961 billion yuan in 2024Q3, -1.70% YoY; net profit to mother 0.13 billion yuan, -12.75% YoY.

reviews

There was a slight year-on-year decline in Q3 revenue, indicating that downstream demand was still generally weak. Total revenue for 2024Q3 was 1.961 billion yuan, -1.70% year-on-year, continuing the slight year-on-year decline since the second quarter, or indicating that downstream demand is still generally weak.

The decline in gross margin is quite obvious. In the context of weak demand and supply chain transfers due to increased management expenses and increased exchange losses, China's lighting product exports have generally shown the characteristics of declining average prices since 2023-2024, causing corporate profit margins to continue to shrink. 2024Q3's gross profit margin was 27.53%, -4.27pct year on year. We believe the impact of price pressure on the company's performance has already been shown. In terms of cost ratios, the company's sales/management/R&D/finance expenses rates were 6.60%/8.39%/4.43%/1.74%, respectively, -0.77pct/+0.61pct/-1.59pct/+1.43pct, respectively. We believe that the company's efforts to “work hard at internal skills” have been clearly reflected in sales and R&D, but the management cost ratio is still high due to the optimization of the talent structure and investment in overseas production capacity bases. At the same time, the increase in exchange losses due to exchange rate changes has led to a marked increase in financial expenses. As a result, the company's net profit margin to mother was 6.62%, -0.84pct year over year.

The introduction of the repurchase plan shows the company's confidence. It is concerned about the progress of production capacity construction in Thailand and the impact of interest rate cuts in North America. The company announced that it plans to use 5-10 million yuan to repurchase shares, most of which will be used for future employee stock ownership plans or equity incentives, showing confidence. Judging from Q3, the company's “diligent internal skills” results have been achieved on the sales and R&D side, and it is expected that future improvements on the management cost side will bring performance flexibility; at the same time, the company will continue to build a production capacity base in Thailand, which will help strengthen its ability to withstand the risk of international political and economic uncertainty. On the other hand, the US has already entered the stage of interest rate cuts. The market expects interest rate cuts to improve existing housing sales in North America, and general lighting is expected to benefit as a real estate chain.

Profit forecasting and valuation

Considering that the lighting export industry chain is still in the transition and adjustment period, the acceleration of overseas investment and weak demand may affect profitability. It is estimated that in 2024-2026 the company's revenue will be 6.745/7.071/7.387 billion yuan, respectively, +0.96%/+4.83%/+4.47%; net profit to mother will be 0.343/0.388/0.43 billion yuan, respectively, +9.25%/+13.21%/+10.84%, corresponding to EPS 0.68/0.77/ 0.85 yuan, maintaining the “Overweight” rating.

Risk warning

Downstream demand falls short of expectations; overseas production capacity construction falls short of expectations; cost reduction and efficiency fall short of expectations