Incident: Recently, the company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved revenue of 177.177 billion yuan, +13.67%; net profit to mother of 9.075 billion yuan, +23.06% year over year; net profit without return to mother of 8.117 billion yuan, +15.43% year over year; the company achieved revenue of 73.579 billion yuan in a single quarter of 2024, +27.07% year-on-year, +43.73% month-on-month; net profit to mother 3.679 billion yuan, +21.88% year over month, +25.76% month on month; net profit after deducting non-return to mother was 3.158 billion yuan, up +9.71% year over year, +13.74% month on month. The company also announced its 2024 annual performance forecast. It is expected that in 2024, the company will achieve net profit of 131.43 to 13.691 billion yuan, an increase of 20% to 25% over the previous year; net profit after deducting non-return to mother of 114.86 to 12.713 billion yuan, an increase of 12.76%-24.82% over the previous year.

Key points of investment:

Factors such as steady growth in performance and extended mergers and acquisitions affect short-term gross profit margins. As traditional products such as computer peripherals in the consumer electronics sector maintained steady growth, new products launched by leading overseas customers also brought clear growth momentum. Rapid growth in the automotive and communications sector, and the contribution of epitaxial expansion contributed to the company's continued revenue growth in the third quarter of 2024. Due to the fact that the performance of some of the products of the subsidiary Likai Precision fell short of expectations and the merger of the two new companies affected the company's gross profit margin in the first three quarters of 2024, the company achieved gross margin of 11.72%, a year-on-year decrease of 0.08%; the gross margin for 24Q3 was 11.75%, down 2.01% year-on-year and 0.94% month-on-month; the company achieved a net interest rate of 5.52% in the first three quarters of 2024, an increase of 0.21% year-on-year, and a decrease of 0.76% month-on-month.

The company has an outstanding competitive advantage in the consumer electronics field and is expected to fully benefit from the new era of AI terminals. The company has been deeply involved in the consumer electronics field for many years, and continues to refine the underlying technology with sound, light, electricity, heat, magnetism and radio frequency as the core. With the support of new processes and new processes, the company has rapid large-scale mass production and process innovation capabilities, provides one-stop product implementation services from components, modules to system solutions for leading global brand customers, and has been highly recognized by many customers. According to Canalys data, in the third quarter of 2024, global smartphone shipments increased 5% year on year to 0.3099 billion units, of which Apple shipped 54.5 million units, an increase of 9% year on year, and quarterly shipments set a record.

The global consumer electronics market has entered a new era of AI, and Apple's artificial intelligence service AppleIntelligence has officially launched, which is expected to lead a new wave of terminal switching. At present, Lixun Precision has covered all categories of products such as smartphones, PCs, and wearable devices from major North American customers. Based on the company's comprehensive competitive advantage, it is expected to fully benefit from the new era of AI terminals by continuously expanding its business boundaries and increasing its market share.

“Process+underlying technology” expanded horizontally to the communications and automotive business, creating a second growth curve. Based on deep accumulation and continuous refinement of comprehensive capabilities in the consumer electronics field, the company has built a “process+underlying technology” capability puzzle and continues to expand its capabilities horizontally to the communications and automotive business, creating a second growth curve. The company's communications and data center business continues to cultivate products such as electric connectivity, optical connectivity, air cooling/liquid cooling, power management, radio frequency, etc., and has built a complete solution service system for in-cabinet interconnection, server, switch, base station RF, etc.; in the field of high-speed interconnection, the company's 224G electrical connection products assemble connectors, copper cables and wiring harnesses for full chain vertical integration. The company's 448G high-speed connectivity solutions have also received many technical institutions and brands in technical exchanges and product testing. Customer recognition; with the implementation of high computing power projects by domestic and foreign cloud vendors, the company's communications business is expected to continue to grow rapidly. The company's automotive business has formed a diversified product matrix such as automobile wiring harnesses, connectors, smart cockpits, intelligent driving, etc., to provide complete product implementation services for the world's leading OEMs through multiple production bases at home and abroad; Leoni is a century-old automotive cable and wiring harness supplier. The acquisition of Leoni will help the company enter a wider range of overseas markets; the domestic market continues to grow and accelerate the expansion of overseas markets, and the company's automobile business is expected to continue to grow rapidly.

Profit forecasting and investment advice. The company is a leading global precision manufacturing enterprise. It has an outstanding competitive advantage in the consumer electronics field. It has covered all categories of products such as smartphones, PCs, and wearable devices from major North American customers, and is expected to fully benefit from the new era of AI terminals. The company will continue to horizontally expand its ability to build “process+underlying technology” to the communications and automotive business, creating a second growth curve. The communication and automotive business is expected to continue to grow rapidly. We expect the company's 24-26 revenue to be 255.503/308.333/351.393 In billion yuan, net profit returned to mother in 24-26 was 13.665/17.229/20.472 billion yuan, the corresponding EPS was 1.89/2.38/2.83 yuan, and the corresponding PE was 22.34/17.72/14.91 times, giving a “buy” rating for the first time.

Risk warning: industry competition intensifies; global geopolitical conflict intensifies; new business development falls short of expected risks; terminal demand falls short of expectations.