The department issued the 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of about 0.288 billion yuan, about +13.54% year on year; net profit to mother was about 0.056 billion yuan, about -3.72% year on year.

Core views

24Q3's revenue in a single quarter was about +26.89% year over year, and +3.49% month-on-month. The company is a pioneer in the field of magnesium alloy die-casting. The company focuses on the application of magnesium alloy and aluminum alloy in lightweight, electrification and intelligence of automobiles, developing simultaneously at home and abroad, and promoting existing products to other brands of cars. In 24Q3, the company achieved revenue of about 0.105 billion yuan, about +26.89% year on year, and about +3.49% month on month; net profit to mother was about 0.019 billion yuan, about -1.15% year on year, and about -0.93% month on month. From a client perspective, SAIC Zhiji 24Q3 showed year-on-year growth. According to Marklines, 24Q3's L6, L7, LS6, and LS7 models produced a total of 16,951 vehicles, which is about +228.64% year over year and -3.58% month over month.

The company's profitability is under pressure

The gross margin of the 24Q3 company was about 33.33%, -3.32pct year over year, and +0.99pct month-on-month; we believe that the month-on-month improvement in gross margin was mainly due to a decrease in raw material prices in 24Q3 compared to 24Q2. In 24Q3, the company's net interest rate was about 18.28%, -5.19pct year-on-year, and -0.82pct month-on-month. The total cost rate of the 24Q3 company was about 12.38%, -2.25pct year-on-year, and +1.49pct month-on-month. Sales/management/R&D/finance expense ratios were approximately -0.08pct/-0.23pct/-0.19pct/+1.98pct, respectively. Among them, the change in the financial expense ratio is mainly due to a decrease in interest income and exchange income for the current period.

In line with the trend of weight reduction in the industry, it is expected that volume and price will rise sharply

Volume: The company is actively expanding new customers. In September 2024, the company received a target for magnesium alloy speed reducer shell products for new energy vehicles. Mass production is expected to begin in June 2025, with a total sales amount of about 0.17 billion yuan from 2025 to 2027. Price: The company is concerned about the continuous transformation of large and medium-sized components. The company successfully developed and mass-produced medium and large magnesium alloy parts such as powertrain cases, display backboards, and center console frames. The average price is about 4 to 5 times the average price of magnesium alloy castings.

Investment advice

The company has benefited from the trend of automobile lightweighting, with a sharp rise in volume and price, and a clear growth path. Based on the company's performance, changes in customer production and new targets, we adjusted the company's performance forecast. The company's revenue for 2024-2026 is 0.41, 0.49, and 0.58 billion yuan respectively, which is about +17.8%, +18.1%, and +18.3%, respectively. Net profit attributable to mother was approximately 0.08, 0.1, and 0.11 billion yuan, respectively, about +4.4%, +15.6%, and +16.7% year-on-year, respectively. As of October 28, 2024, the stock price corresponding to 2024-2026 PE was 43.3, 37.5, and 32.1 times, respectively. Maintain a “buy” rating.

Risk warning

Downstream customer production and sales scale risk reduction; risk of increased competition in magnesium alloy industry; risk of falling product prices; risk of exchange rate fluctuations.