Key points of investment:

The company released its 2024 three-quarter report, and its performance was drastically lost due to the sale of TMD, etc. In the first three quarters of 2024, the company achieved revenue of 16.906 billion yuan, and achieved net profit of -0.532 billion yuan compared to the same period last year, with a gross margin of 14.37% and -0.14pct year over year. We judge that the company's revenue grew steadily in the first three quarters, emerging businesses continued to expand, gross margin remained stable, and the large profit loss was mainly due to one-time expenses and asset impairment due to the sale of TMD and Grammer overseas layoffs. Looking at the quarterly basis, 2024Q3 achieved revenue of 5.9 billion yuan, +7.2% YoY, +3.15% month-on-month, and significant losses; gross margin was 14.08%, -1.02pct yoy, and -0.29pct month-on-month; in terms of cost ratio, 2024Q3 had a sales expense ratio of 1.23%, -0.08pct yoy, flat month-on-month. The management expense ratio (including R&D) was 14.8%, +4.56% YoY, +3.89% month-on-month, financial expenses The rate was 3.11%, +1.15% year over month, and +2.26% month over month. We determined that the sharp increase in management and financial expenses was mainly due to one-time factors such as Grammer's layoffs and intermediary fees caused by the sale of TMD in overseas regions.

The sale of shares in TMD in the US led to significant asset impairment, and performance was lightened. On September 23, 2024, the company issued the “Notice Concerning the Sale of Shares in American TMD”, stating that the company's holding subsidiary Grammer plans to sell Toledomolding & Die, LLC to APC parent, LLC at an initial transaction price of 40 million US dollars. (TMD LLC) 100% equity. The company carried out this transaction mainly due to the lack of strong synergy between TMD LLC's products and the company's other products. In order to focus on the main business and enhance the company's core competitiveness, the company plans to agree to Grammer's sale of TMD LLC. After Grammer sold TMD LLC, it had a significant impact on the company and Grammer's current income statement, but it also increased Grammer's one-time cash inflow, which is beneficial to improving Grammer's cash flow. According to the company's preliminary accounting, the estimated loss amount of the company is 0.28 billion-0.38 billion yuan. As of the 2024 three-quarter report, the company has calculated asset impairment and credit impairment provisions totaling $0.304 billion, including $0.253 billion for assets held for sale.

We judge that after the completion of this transaction, it is expected to reduce the company's further investment in strategic resources in TMD, and also help improve the profitability and financial situation of Grammer's American region, thereby increasing the company's overall profit level.

Profit forecasting and investment advice. We expect the company's net profit to be -0.517/0.903/1.215 billion yuan for 2024-2026, and EPS to be -0.41/0.71/0.96 yuan respectively. Referring to comparable company valuation levels, considering the high growth brought about by the company's new business and the significant relief of pressure on the company's performance after the sale of TMD, we will give it 18-22 times PE in 2025, corresponding to a reasonable value range of 12.78-15.62 yuan, maintaining a “superior to the market” rating.

Risk warning. The growth of the automotive industry fell short of expectations; overseas exchange rate fluctuations; Grammer's integration process fell short of expectations; raw material prices fluctuated sharply; new business development fell short of expectations; and overseas geopolitical risks.