Incident: The company released its 2024 three-quarter report. In the first three quarters, the company achieved revenue of 16.91 billion yuan, +6.1% year-on-year, and a net profit loss of 0.53 billion yuan to mother, which turned into a year-on-year loss. Among them, 24Q3 achieved revenue of 5.9 billion yuan, a year-on-year increase of 7.2%, and a net profit loss of 0.585 billion yuan to mother, which turned into a year-on-year loss.

Q3 The apparent profit turned negative due to the effects of depreciation of assets sold, etc., and the major inflection point in performance was clear. After the loss burden was divested, Grammer would usher in an important profit inflection point. In the third quarter, the company lost 0.585 billion yuan in net profit, which was negative compared to the same period. The main ones were: ① deducted 0.25 billion yuan for TMD of sold assets; ② overseas layoff expenses plus related intermediary expenses increased management expenses by 0.23 billion yuan; ③ financial expenses due to exchange losses increased by about 0.08 billion yuan; ④ deferred income tax increased income tax. Q3 income tax expenses were 0.09 billion yuan, +0.084 billion yuan year on month, +0.058 billion yuan year on month billion yuan.

The major inflection point in performance is clear. The seat business & overseas assets all ushered in profit inflection points:

The seat business has reached a profit inflection point and has fully entered the large-scale stage: the passenger car seat business has continued to win multiple model projects from multiple customers since reaching 0 to 1 in 2021. Passenger car seats have broken through the game and accelerated 1-N. Currently, seat customers have achieved full coverage of new forces & autonomous & joint ventures. As of July 31, 2024, the company has a total of 18 passenger car seat projects in operation. The seat business achieved revenue of 0.655 billion yuan in 2023, and nearly 0.9 billion yuan in revenue in the first half of 2024. The 24Q2 seat business achieved profit in a single quarter for the first time. As more new projects are put into production, the seat business will fully enter the large-scale stage.

With the divestment of TMD assets, Grammer ushered in a profit inflection point: TMD is a wholly-owned subsidiary of the holding subsidiary Grammer in the North American market, and is also an important bleeding point for Grammer. TMD profits for 21-23 were -0.3 billion yuan, -1.22 billion yuan (including impairment), and -0.26 billion yuan respectively, while Grammer's profit for 21-23 was 0.646 million euros, -78.56 million euros (including impairment), and 3.41 million euros, respectively. After divesting the burden of losses, Grammer's performance will be significantly repaired.

Autonomous seat leaders are game breakers, local alternatives are fully led, and global alternatives can be expected in the future. High quality passenger car seats on the racetrack.

1) Large space: The current domestic 100 billion, global 300 billion, estimated domestic 150 billion in 25 years, CAGR = 17%; 2) Good pattern: global CR5 > 85%, domestic CR5> 70%, and they are all foreign-funded; 3) the most important allocation of consumer attributes, accelerating upgrading to promote price increases & substitution. The company continues to be optimistic about the accelerated breakdown of passenger car seat tracks with large space, good pattern, and accelerated consumption upgrades. Currently, it has achieved full coverage of new forces, autonomy, and joint ventures. It is expected that it will continue to fully lead the local replacement of passenger car seats with cost advantages, quick response capabilities, and Grammer's empowerment. Earlier, the company also announced that it had received overseas orders from BMW to achieve 0 to 1 of seat globalization, local replacement upgrades to global replacement, and is expected to use Grammer's global background and production capacity to open up the global seat market. It is optimistic that the company will become a new global passenger car seat star in the medium to long term.

Profit forecast: Taking into account the company's Q3 impairment losses and cost-side accruals, the adjusted 24-26 net profit to mother was -0.41 billion yuan, 1.01 billion yuan, and 1.28 billion yuan (previous values were 0.43 billion yuan, 1.14 billion yuan, 1.45 billion yuan), which significantly reversed losses year over year 25, with a year-on-year growth rate of 27% in 26, corresponding to PE 17X and 13X respectively in 25-26. The company is a leading game breaker for autonomous seating. The inflection point of seat & overseas profits has been reached, maintaining a “buy” rating.

Risk warning: industry demand falls short of expectations, new business profits fall short of expectations, overseas falls short of expectations, etc.