3Q24 results are in line with market expectations

The company announced 1-3Q24 results: revenue of 2.2 billion yuan, a year-on-year decrease of 13.9%, and net profit to mother of 94.75 million yuan, a year-on-year decrease of 62.5%, in line with market expectations. Looking at a single quarter, 3Q24's revenue was 0.74 billion yuan, a year-on-year decrease of 12.9%, and net profit to mother was 43.57 million yuan, a year-on-year decrease of 18.6%.

The gross margin improved month-on-month, and the share of the non-lithium battery business increased. 1-3Q24/3Q24 The company's comprehensive gross margin was 31.6%/33.6%, a year-on-year decrease of 2.2 ppt/increase of 3.4 ppt, and a month-on-month increase in the third quarter. We estimate that it is mainly an increase in the share of revenue from the non-lithium battery business with higher gross margin. The 3Q24 company's expense ratio was 28.6%, up 4.3ppt year on year. We estimate that the main reason was the decline in revenue scale. Among them, sales/management/R&D/finance expense ratios were +1.0pp/+0.8ppt/+1.8pp/+0.7ppt, respectively. 1-3Q24/3Q24, the company's net profit margin was 4.3%/5.9%, a year-on-year decrease of 5.6ppt/0.4ppt.

Operating cash flow improved month-on-month. The net cash flow from 3Q24's operating activities was 39.28 million yuan, an increase of 0.13 billion yuan over the previous year, and changed from net outflow to net inflow over the previous month. As of the end of 3Q24, the company's notes and accounts receivable were 1.88 billion yuan, an increase of 0.85 billion yuan over the previous year, and contract liabilities were 1.47 billion yuan, a decrease of 0.4 billion yuan over the previous year.

Development trends

Lithium battery: Follow the progress of domestic and foreign projects. Domestic: Downstream lithium battery customer demand is declining, and the pace of acceptance is slowing down, affecting the company's revenue recognition and profit situation. Pay attention to subsequent demand conditions such as improvements in the pace of acceptance and transformation of lithium battery customers. Overseas: In recent years, the demand boom in the overseas lithium battery market has peaked upward, reducing the downward impact of domestic lithium battery demand. However, the overseas order conversion cycle is relatively long, focusing on the progress of the project and turning it into revenue.

Non-lithium batteries: The share of orders and revenue has increased, and we will continue to monitor the growth trend. We estimate that the 3Q24 company's share of non-lithium battery revenue will continue to rise, supporting the company's profit margin improvement from month to month. 1H24's share of non-lithium battery orders rose to 35%, and we estimate that 3Q24's share will continue to rise. The company has leading product technology competitiveness and continues to expand the non-lithium battery field, such as continuously receiving new product orders from top international customers in the consumer electronics sector, considering higher order profit margins in consumer electronics and other fields, and focusing on the execution of subsequent orders and the continuity of new orders.

Profit forecasting and valuation

Maintain an outperforming industry rating. Maintain the 2024/2025 profit forecast of 0.2 billion yuan/0.3 billion yuan. The current transaction is 26.4x/17.5x 2024/2025 P/E. Considering the upward trend in the valuation center, the target price was raised 32% to 18.10 yuan, corresponding to 30.9x/20.5x 2024/2025 P/E, with 17% upward space.

risks

The recovery in demand in the lithium battery business fell short of expectations, and the progress of the non-lithium battery business fell short of expectations.