Hangke Technology released its three-quarter report: Q3 achieved revenue of 0.78 billion yuan (yoy -34.31%, qoq -22.51%) and net profit of 0.107 billion yuan (yoy -55.24%, qoq +10.67%). Q1-Q3 2024 achieved revenue of 2.671 billion yuan (yoy -19.27%), net profit of 0.376 billion yuan (yoy -47.34%), deducting non-net profit of 0.34 billion yuan (yoy -51.16%). Since the company has long-term cooperation experience with overseas customers and has overseas production capacity, it is expected that it will continue to benefit from the increase in equipment orders brought about by the expansion of lithium battery production capacity in Europe and the US, and maintain a “buy” rating.

Due to the slowdown in downstream demand, the gross margin for the single quarter was under year-on-year pressure. The company's gross profit margin increased by 29.96% in the first three quarters of 24, -9.46pct, 24Q3 gross profit margin of 30.06%, -8.88pct, and 3.68pct month-on-month. The year-on-year decline in gross margin was due to a slowdown in downstream demand. The increase in gross margin caused part of the overseas revenue in 24Q2 to be settled in the DDP model. The cost rate for the first three quarters was 13.08%, +2.58pct year on year, of which 24Q3 cost rate was 18.23%, +3.53pct year on year, partly due to pressure on revenue scale. Among them, sales expenses ratio was 3.72%, +0.93pct year on year; management expenses rate 5.57%, +0.08pct year on year; R&D expenses rate 8.50%, +3.60pct year on year; financial expense ratio 0.44%, y-1.08pct year on year.

Continuing to expand overseas markets and obtain orders for lithium battery back-up equipment from Volkswagen Group. According to the company's announcement on August 12, Hangke Technology recently received a contract generated by Volkswagen Spain and Volkswagen Canada through a bidding system. The subject of the above contract was lithium battery back-up equipment purchased by Volkswagen Group to produce batteries in Spain and Canada. The total contract amount exceeded 45% of the company's audited revenue for the previous year (about 1.77 billion yuan). This cooperation between the company and Volkswagen is expected to enhance the company's global business expansion in the field of new energy batteries, especially in the European and North American markets. In the future, along with the expansion of lithium battery production capacity in the European and North American markets, the company is expected to continue to benefit as a leading manufacturer with extensive experience in cooperating with foreign customers.

Profit forecasting and valuation

Due to the slowdown in downstream demand and intensified market competition, we lowered our revenue growth rate and gross profit margin. Based on the impact of exchange, the company's overseas business is expected to continue to grow in the medium to long term. The company's net profit for 2024-2026 is 0.667, 0.924, 1.164 billion yuan (previous values of 0.877, 1.079, 1.418 billion yuan), and the corresponding EPS is 1.11, 1.53, 1.93 yuan (previous values 1.45, 1.79, 2.35 yuan). Comparatively, the company's 25-year Wind unanimously expected an average PE value of 13 times. Considering that the company has stronger overseas delivery capacity and overseas production capacity, there should be a certain premium. The company should be given 17 times PE in 25 years, with a target price of 26.01 yuan (previous value of 20.30 yuan).

Risk warning: Geopolitical fluctuations adversely affect the company's external cooperation; industry growth falls short of expectations; new customer development and acceptance falls short of expectations; exchange rate fluctuations bring operating risks.