Key points of investment:

Revenue for the first three quarters of 2024 increased 9.97% year over year, and net profit to mother increased 15.07% year over year. In the first three quarters of 2024, the company achieved revenue of 10.869 billion yuan, a year-on-year increase of 9.97%; a comprehensive gross profit margin of 35.17%, a year-on-year decrease of 1.19pct; and net profit to mother of 1.269 billion yuan, an increase of 15.07% year-on-year.

We believe that the growth rate of the company's net profit to mother is higher than the revenue growth rate due to changes in fair value, etc.

Rates increased year over year during the first three quarters of 2024. In the first three quarters of 2024, the company's rate for the period was 18.14%, an increase of 0.56pct over the same period last year. Sales rates declined year-on-year, and management rates, financial rates, and R&D rates all increased to varying degrees.

Let's take a look specifically:

(1) The sales rate was 3.29%, a year-on-year decrease of 0.11pct. (2) The management fee rate was 9.34%, an increase of 0.49pct over the previous year.

(3) The R&D rate was 4.92%, an increase of 0.12pct over the previous year. (4) The financial rate was 0.60%, an increase of 0.06pct over the previous year.

Revenue for the third quarter of 2024 increased 12.19% year over year, and net profit to mother increased 14.55% year over year. In the third quarter of 2024, the company achieved revenue of 3.638 billion yuan, a year-on-year increase of 12.19%; a comprehensive gross profit margin of 35.95%, a year-on-year decrease of 1.66 pct; and net profit to mother of 0.425 billion yuan, an increase of 14.55% over the previous year. We believe that the growth rate of the company's net profit to mother was higher than the revenue growth rate, mainly due to the 1.29pct year-on-year reduction in the period rate, etc.

Rates declined year over year during the third quarter of 2024. In the third quarter of 2024, the company's rate for the period was 18.74%, a year-on-year decrease of 1.29pct. R&D rates, sales rates, and financial rates declined year on year, and management rates increased year on year.

Let's take a look specifically:

(1) The sales rate was 3.50%, a year-on-year decrease of 0.04pct. (2) The management fee rate was 9.47%, an increase of 0.41pct over the previous year.

(3) The R&D rate was 5.44%, down 0.28pct year on year. (4) The financial rate was 0.34%, a year-on-year decrease of 1.37pct.

The leading global relay market position is stable, and it is expected to benefit deeply from the rapid development of industries such as new energy vehicles.

According to the 2024 semi-annual report of Hongfa Co., Ltd., quoting the “2023 China Electromagnetic Relay Market Competition Research Report” issued by Zhiduoxing Consultants, the global electromagnetic relay market size in 2023 was about 54 billion yuan, an increase of 3.6% over the previous year. Among them, China's electromagnetic relay market size was about 37.18 billion yuan, an increase of 5.1% over the previous year.

We believe that with strong growth in smart homes, industrial automation, and photovoltaics, the rapid development of intelligent global electric meters, intelligent automobiles and new energy vehicles, and the spread of 5G communication, the electromagnetic relay market will maintain a good development trend, and the company is expected to benefit deeply as a global relay leader.

Profit forecasting and investment advice. We expect the company's net profit to be 1.619 billion yuan, 1.898 billion yuan, and 2.233 billion yuan in 2024-2026, respectively. Earnings per share were $1.55, $1.82, and $2.14. Based on the company's leading position in relays in the world, the company's overall growth, and peer valuation level, the company was given 20-25 times PE in 2024, corresponding to a reasonable price range of 31 yuan to 38.75 yuan. Maintain an “better than market” rating.

Risk warning. Overseas car companies' entry into the market fell short of expectations, the risk of fluctuations in the US dollar exchange rate, and the risk of market competition.