The performance was better than market expectations. The company's revenue for the first three quarters was 4.273 billion yuan, up 33.8% year on year; net profit to mother was 0.607 billion yuan, up 33.2% year on year; net profit after deducting non-return to mother was 0.568 billion yuan, up 31.2% year on year. Revenue for the third quarter was 1.53 billion yuan, up 24.1% year on year, up 15.5% month on month; net profit to mother was 0.235 billion yuan, up 30.8% year on year, up 54.1% month on month; net profit after deducting non-return to mother was 0.225 billion yuan, up 30.0% year on year, up 56.9% month on month.

The gross margin increased month-on-month in the third quarter, and the cost ratio and cash flow improved significantly. The gross profit margin for the first three quarters was 29.3%, down 1.5 percentage points year on year; the gross profit margin for the third quarter was 29.7%, down 0.9 percentage points year on year, up 3.5 percentage points from month to month; the cost ratio for the first three quarters was 14.3%, down 2.3 percentage points year on year. Among them, sales expenses increased 0.7 percentage points year over year, management expenses decreased 1.2 percentage points year on year, and R&D expenses decreased 2.3 percentage points year on year. Net cash flow from operating activities in the first three quarters was 0.54 billion yuan, up 36.0% year on year, mainly due to increased cash received from sales of products.

Domain control products are being released at an accelerated pace, and new products are expected to open up a second growth curve. The company's old and new businesses went hand in hand. The lighting control business, motor control business, and vehicle electronics business achieved revenue of 2.135, 0.672, and 0.629 billion yuan respectively in the first three quarters, with year-on-year increases of 29.5%, 19.6%, and 16.7%, respectively. Domain control products accelerated. In the first three quarters, energy management system product revenue was 0.569 billion yuan, up 99.5% year on year; in the third quarter, energy management system product revenue was 0.25 billion yuan, up 94.3% year on year and 48.5% month on month, accounting for 16.8% of main business revenue from 13.3% in the second quarter. The company's new products such as DCC, ASC, eLSV (electronic steering column controller), DC/DC, and thermal management intelligent actuators have received orders from global customers such as Volkswagen, BMW, Audi, and Porsche, and Efuse (smart fuse box) products have been targeted by customers such as Volkswagen, Geely, and Ideal and have been mass-produced this year; the participating company Keboda Intelligent Technology has received multiple project targets in the field of autonomous driving domain controllers. It is expected that mass production of some projects will begin in the second half of 2024. It is expected that new products such as domain control, smart driving, and Efuse will drive the continuous improvement of the company's bicycle supporting value and become an important driving force for the company's medium- to long-term development.

The influx of new customers is expected to continue to drive the company's performance improvement. The company accelerated the development of new energy customers and entered the supporting system for new domestic and foreign car companies, such as the new North American car builder, Ideal, NIO, Xiaopeng, and Jikrypton. Volkswagen accounted for about 48% of revenue in the first half of the year, down about 13.6 percentage points from the beginning of the year. Among the new forces, Ideal Auto became the company's fourth largest customer in the first half of the year, accounting for more than 10% of sales. As the production and sales volume of new car companies gradually grow and their market share continues to increase, it is expected that orders for the company's intelligent products will continue to be released, helping to improve the company's performance.

By adjusting gross margin and expense ratios, etc., it is predicted that the EPS for 2024-2026 will be 2.11, 2.75, and 3.45 yuan (originally 1.93, 2.52, and 3.13 yuan), respectively, maintaining a comparable company's 24-year PE average valuation of 34 times, and a target price of 71.74 yuan, maintaining the purchase rating.

Risk warning

The supporting volume of the lighting control business fell short of expectations, the motor control business fell short of expectations, the automotive electrical and electronics business fell short of expectations, and the sales volume of the passenger car industry fell short of expectations.