Q3 revenue of 2.42 billion yuan, yoy +11% /qoq +7.7%, net profit of 0.265 billion yuan, slightly higher than the forecast center (0.25-0.27 billion yuan), yoy +20% /qoq +5%, in line with our expectations, gross profit margin of 24%, yoy+2.3/qoq+1.1pct, Q3's profitability improved month-on-month or benefited from the company's active production schedule and effective internal cost reduction. Maintain a buy rating.

Steam teeth release scale effect+product structure optimization+intelligent drive mechanism volume, driving profitability to improve company Q1-Q3 to achieve revenue of 6.743 billion yuan (yoy +14.83%), net profit to mother of 0.738 billion yuan (yoy +25.21%), deducting non-net profit of 0.711 billion yuan (yoy +29.21%), Q3 profit increased year-on-year, gross profit margin of 24%, yoy+2.3/qoq+1.1pct, net profit to mother 11%, yoy+0.8/ qoq-0.3pct, we think the driving force is: (1) Q3 NEV gear release scale effect: Q3's important NEV customers are actively scheduling production. According to the China Automobile Association, mainstream NEV companies' sales volume Q3 is Q2, ideal +41% month-on-month /Cyrus +11% month-on-month /Tesla Shanghai +21% month-on-month; (2) the company's product structure optimization: We believe that Q3 gross margin is rising or the company's higher value steam gear production, and the increase in the volume and price of intelligent driving products has improved profit performance; (3) internal cost reduction continues to improve profit performance; Efficiency and optimization of production Technology reduced fixed cost expenses. The Q1-Q3 management rate in '24 was -0.3 pct to 3.5% year on year, while the R&D rate was +0.3 pct to 4.8% year over year due to increased investment in new product development.

From large gears to small gears, the volume and price of intelligent mechanisms have risen sharply

The company entered the intelligent actuator through the acquisition of Sanduole. Through the integration and management of Sanduole and leveraging the synergetic effects of the automotive gear business, the company has now expanded various application fields such as automobile power transmission, intelligent vehicle actuators, sweepers, drones, smart furniture and medical care. The revenue of 24H1 intelligent actuator increased 82% year-on-year, and the performance has entered the cash out period. We are optimistic that the company will accelerate the expansion of more market segments and increase support for middle and high-end products to increase the price of a single set, thereby increasing the overall profit center.

Robotic speed reducers are gradually establishing market reputation. Waiting for the core customer group to further break through the company's deep accumulation in the field of robot reducers. Currently, the market reputation of the core product RV reducer is gradually opening up. We are optimistic that the company will further break through the core customer group. The market is concerned about the valuation of the company's speed reducer subsidiary Huandong Technology to split or dilute the double ring transmission, and the robot reducer industry is a capital-intensive and technology-intensive industry that requires large capital investment in R&D and production. We believe that the spin-off and listing of Huandong Technology is beneficial to broadening the company's financing channels, increasing investment in innovation, and can also motivate the core technical team. It is beneficial to the development of the subsidiary in the long term, and Shuanghuan is expected to enjoy more profit margins.

Profit forecasting and valuation

We maintain our profit forecast. We expect the company's net profit to be 1/1.2/1.4 billion for 2024-2026, respectively.

Under the segmented valuation method, Wind unanimously expected the average PE value of a comparable company in the steam gear related business and the precision reducer business to be 17/24 times PE in 25 years, respectively. Considering the company's stable position in the steam gear head position, the company was given 20/24 times PE in 25 years for the steam gear-related business and the reducer business, respectively, corresponding to a target price of 30.00 yuan.

Risk warning: The growth of new energy vehicles fell short of expectations; localization of robot parts fell short of expectations; industry competition intensified; costs related to materials and exports exceeded expectations; and the progress of the spin-off and listing fell short of expectations.