Incident: OPP Lighting announced its 2024 three-quarter report. From January to September 2024, the company achieved revenue of 5.07 billion yuan, YoY -8.1%; realized net profit to mother of 0.62 billion yuan, YoY -5.7%.

After conversion, the company achieved revenue of 1.7 billion yuan, YoY -13.6% in the 2024Q3 quarter; realized net profit to mother of 0.24 billion yuan, YoY -9.7%. In the context of the downturn in the real estate industry, demand in the Q3 company's industry was under pressure. Stimulated by trade-in subsidies, we expect a gradual improvement in industry demand.

Under pressure from the external environment, OPP continues to improve its overall competitiveness: affected by multiple factors such as the downturn in the real estate industry and weak consumer demand, the lighting industry is under pressure. OPP's revenue declined in 2024Q3. OPP continues to expand and optimize offline channels, improve product solutions, and continuously strengthen its competitive advantage.

OPP's 2024Q3 gross margin increased year-on-year: OP 2024Q3's gross margin for the single quarter was 42.0%, +1.1 pct year over year. We think the main reason is: 1) the effects of the company's product platform construction continue to be reflected; 2) the company launched diversified product solutions, continuously optimized the product structure, and boosted the customer unit price increase.

OPP's 2024Q3 net return interest rate maintained a year-on-year upward trend: OPP's 2024Q3 single-quarter net return interest rate was 13.9%, +0.6pct year-on-year. Due to the decline in revenue, the scale effect on the company's cost side has weakened. The 2024Q3 company's sales/management/R&D expense ratio was +0.6pct/+1.0pct/-0.8pct year-on-year. The Q3 financial expense ratio was +1.4pct. We think it was mainly due to a decrease in interest income.

The company's net cash flow from operating activities declined slightly: the company's net cash flow from operating activities in 2024Q3 was -0.17 billion yuan year-on-year, mainly due to the decline in the company's revenue under pressure from the external environment. Q3 Cash received by the company from sales of goods and provision of labor services -0.36 billion yuan year-on-year.

Investment advice: OPP is a leader in the lighting industry. By deepening digital transformation, strengthening platform construction, promoting product quality upgrading, and continuous improvement in overall competitiveness, it is expected that its market share will continue to increase, and it has growth and consumption attributes. We expect the company to have EPS of 1.18/1.25/1.31 yuan from 2024 to 2026, with a target price of 18.75 yuan for 12 months, corresponding to the 2025 PE valuation of 15x, maintaining an investment rating of +A.

Risk warning: Competition in the industry has intensified, and the real estate market has fluctuated greatly