Revenue in a single quarter reached a record high, and profit margins were slightly negatively affected by financial expenses. The company announced results for the first three quarters of 2024, achieving revenue of 3.333 billion yuan (YoY +51.16%), net profit to mother of 0.459 billion yuan (YoY +85.36%), gross sales margin of 33.76% (YoY +0.91pct), and net sales margin of 14.24% (YoY+2.56pct). Corresponding to 3Q24, we achieved revenue of 1.189 billion yuan (YoY +41.50%, QoQ +7.66%), net profit of 0.151 billion yuan (YoY +23.53%, QoQ +3.60%), gross profit margin of 33.60% (YoY-1.48pct, QoQ +1.11pct), and net profit margin 13.10% (YoY -2.52pct, QoQ -0.76pct).

The company's profit margin declined slightly month-on-month mainly because: 1) investment income decreased by 0.007 billion yuan month-on-month; 2) conversion of new construction capacity; 3) income tax increased by 0.012 billion yuan month-on-month, which did not affect the actual profitability of the product.

Leading automotive high-speed connectors, smart driving upgrades drive increased profitability. According to China Automobile Association data, 3Q24 became the first quarter where the domestic NEV market penetration rate exceeded 50%. In October, the entire Hongmeng Zhixing series delivered 0.0416 million new vehicles, ranking first in the average transaction price in the high-end market for 6 consecutive months. Hongmeng Zhixing's models will be equipped with Huawei Smart Drive as standard for all models. At present, the company has a complete range of automotive connector products and rich experience in mass production. It is the core supplier of smart driving for Huawei, and has entered the supply chain of major domestic automobile manufacturers such as Cyrus, BYD, Geely, Great Wall, Changan, and Chery. As the penetration rate of intelligence increases rapidly and the share of Ethernet connector revenue increases, the gross margin of automobile-related products is expected to continue to rise in the medium to long term.

The second half of the year has entered a period of intensive release of new Android devices, and the company's high-end product layout is ready to go. From October to November, flagship models of vivo, oppo, Honor, Xiaomi, and Huawei will be released one after another, and the Huawei Mate 70 series will be ready in September. Combined with the advance of this year's Double 11 schedule and government subsidies for mobile purchases implemented in many places, the operating rate of the 4Q24 Android phone industry chain is expected to increase further. In terms of board-to-board connectors, the products have been used by core customers in batches. In the future, as 5G millimeter wave frequency segments and folding screen penetration rates increase, high-end products such as LCP and RF BTB connectors in the company's layout will all usher in more market space.

Investment advice: Maintain profit forecasts and maintain a “better than the market” rating.

The market share of the company's high-end products such as BTB connectors in the consumer electronics sector continues to rise, and the automotive connector business has entered a performance release period. We are optimistic about the company's long-term development and maintain profit forecasts. The company's net profit for 24-26 is 0.62/0.815/1.011 billion yuan (YoY +74.0%/+31.5%/+24.2%). The current stock price corresponds to PE 30/23/18x, maintaining the “superior to the market” rating.

Risk warning: Downstream demand falls short of expectations; the increase in company share falls short of expectations.