Incidents:

The company released its 2024 three-quarter report. In the first three quarters, the company achieved revenue of 2.2 billion yuan, a year-on-year decrease of 13.88%, and realized a net profit of 0.095 billion yuan to mother, a year-on-year decrease of 62.46%. Q3 achieved 0.744 billion yuan in a single quarter, a year-on-year decrease of 12.93%, and realized net profit to mother of 0.044 billion yuan, a year-on-year decrease of 18.57%. Comments on this are as follows:

Q3 Profits picked up, and the inflection point in performance gradually became apparent. The year-on-year decline in Q3's profit narrowed sharply compared to Q1 and Q2. The company's gross margin in the first three quarters was 31.60%, down 2.22pct year on year. The gross margin of the company's lithium battery business fell significantly in '24, which lowered the overall gross profit margin. On a quarterly basis, 24Q1/Q2/Q3 gross margins were 29.23%/31.98%/33.55%, respectively. It is expected that the optimization of the revenue structure will drive the company's gross margin to continue to increase. The company's new lithium battery order structure improved dramatically in '24. According to data disclosed in the company's semi-annual report, 24H1 overseas new orders increased 695.68% year on year, lithium battery refurbishment orders increased 102.57% year on year. The gross margin of overseas and retrofit orders is high. The gross margin of the company's lithium battery business is expected to pick up after orders are gradually transferred to revenue.

Q3 Operating cash flow was positive, and credit impairment narrowed significantly. The company's daily operating conditions improved markedly. The company's operating cash flow in Q3 was 0.039 billion yuan, which changed from negative to positive year over month; credit impairment was -6.66 million yuan, which was significantly narrower than in Q1 and Q2.

The share of the non-lithium business increased, and the 3C business took the lead in entering the harvest period. In 2022 to 2023, the company's lithium battery business accounted for more than 80% of the revenue, and the non-lithium battery business accounted for 35.05% of the new orders signed by 24H1. In the future, the share of the non-lithium battery business in the company's revenue structure will increase significantly. While domestic demand for lithium battery equipment is declining, the company continues to expand non-lithium battery businesses such as 3C, medical care, automotive parts, semiconductors, and photovoltaics, and has made good progress. The EU's new battery law requires 3C product battery designs to be detachable. The company's forward-looking small-steel battery welding business took the lead this year, which is expected to contribute to a considerable increase in profits. The gross margin of the company's non-lithium battery business is significantly higher than that of the lithium battery business, and will become an important profit growth point for the company.

Profit forecast: Since the company's lithium battery business is still clearly under pressure on the revenue side in the short term, the company's profit forecast was lowered. The company's net profit forecast for 2024-2026 is estimated to be 2.51, 4.08, and 521 million yuan (previous values: 403, 4.96 million yuan, and 596 million yuan), respectively. The corresponding PE values are 21, 13, and 10 times, respectively, to maintain the “gain” rating.

Risk warning: New business development falls short of expectations; profit forecasting and valuation models fail