Key points of investment

Revenue increased slightly. In the first three quarters of 2024, the net profit growth rate of 2024Q3 was corrected. In the first three quarters of 2024, the company achieved revenue of 2.886 billion yuan, +2.01% year over year, achieved net profit to mother 0.056 billion yuan, or -34.31% year over year, and realized net profit without deduction of -0.016 billion yuan, or -63.32% year over year.

Against the backdrop of a sluggish manufacturing boom, the company's revenue continued to grow positively.

Looking at the single quarter of 2024Q3, the company achieved revenue of 0.865 billion yuan, +1.26% year over year, realized net profit due to mother 0.013 billion yuan, +166.47% year over year, and realized net profit deducted from non-mother - -0.023 billion yuan, or -106.89% year over year.

The gross margin has declined, and the performance on the cost side is relatively stable

The company's gross margin for the first three quarters of 2024 was 16.57%, -1.49pct year on year, of which the company's gross margin for the 2024Q3 single quarter was 15.50%, -1.91pct year on year, and -1.76pct month-on-month. Gross profit margins have declined. The company's net sales margin for the first three quarters of 2024 was 2.89%, -0.59pct year on year. Among them, the company's net sales margin for the 2024Q3 single quarter was 2.48%, +1.39pct year on year, and -0.27pct month-on-month.

In terms of period expenses, the company's expenses rate for the first three quarters of 2024 was 16.58%, +0.05pct year on year. Among them, sales/management/finance/R&D expenses rates were 3.75%/8.07%/-0.06%/4.82%, respectively, +0.16pct/+0.55pct/-0.24pct/-0.43pct. The company's cost rate remained flat year on year, and the management expense ratio increased. We judge that the main reason was the increase in employee remuneration paid by the company.

Issuing an equity incentive plan to demonstrate confidence in future growth

1) The company issued an equity incentive plan: On October 9, 2024, the company released the first restricted stock incentive plan (draft), which plans to grant no more than 19 million restricted shares to the company's executives, R&D backbone, sales staff, etc.

2) The conditions for lifting sales restrictions on equity incentives include four aspects: ① Based on net profit from the mother in 2023, the 2025/2026/2027 net profit growth rate is not less than 32%/52%/75% (and not lower than the same industry average or 75th quartile value of the target company); ② the return on net assets in 2025/2026/2027 is not less than 1.42%/1.61%/1.82%, (and not lower than the average value of the same industry or 75th quartile value of the target company); ③ 2025/2026/2027 DeltaEVA>0; ④ The 2025/2026/2027 innovation business revenue growth rate was not less than 10% compared to the previous year.

3) Highlight the company's confidence in future growth: This equity incentive was assessed on the four aspects of net profit, return on net assets, economic added value, and innovative business revenue, providing guiding goals for 2025-2027 operations, demonstrating the company's confidence in future growth.

Profit forecast and investment rating: Considering that the recovery process in the machine tool industry fell short of expectations, we lowered the company's 2024-2025 net profit forecast to be 0.76 (original value 3.14) /1.37 billion yuan (original value 4.24) billion yuan respectively, and the current stock price corresponds to dynamic PE of 119/66/50 times, respectively. Considering that the construction of the company's fund-raising projects is progressing smoothly, it is expected that the future will inject new growth vitality and maintain the “gain” rating.

Risk warning: manufacturing recovery falls short of expectations, demand for machine tools falls short of expectations, risk of macroeconomic fluctuations