Incident: The company released its 2024 three-quarter report. In the first three quarters, it achieved operating income of 3.995 billion yuan, a year-on-year decrease of 23.22%; realized net profit to mother of 0.412 billion yuan, a year-on-year decrease of 30.84%.

Industry demand fluctuates, and short-term performance is hampered

In 2024, the company continued to grow in product orders from new markets, new fields, and the civilian sector, but in the face of complex and changing domestic and foreign economic conditions and fluctuations in market demand in traditional supporting fields, the company achieved operating income of 3.995 billion yuan (-23.22%), net profit to mother of 0.412 billion yuan (-30.84%), and net profit after deducting non-attributable net profit of 0.378 billion yuan (-34.27%) in the first three quarters. Looking at a single quarter, 24Q3 achieved revenue of 1.073 billion yuan, -32.17% YoY/-17.91% YoY; net profit to mother was 0.027 billion yuan, -84.08% YoY/-83.29% YoY.

By business, in the first half of the year, the company's relay business achieved revenue of 0.138 billion yuan (-33.96%), connector and interconnection products achieved revenue of 1.878 billion yuan (-23.19%), motors and control components achieved revenue of 0.754 billion yuan (-11.85%), optical communication devices achieved revenue of 0.079 billion yuan (+23.44%), and other business revenue was 0.073 billion yuan (+52.27%).

Continuously optimize operating efficiency, and improve profitability significantly

In terms of profitability, the company's gross sales margin in the first three quarters was 44.36% (+9.11pcts), and the net margin was 11.68% (-1.25pct). The company showed results in cost reduction and efficiency, and the gross margin increased significantly. The cost rate for the period was 27.34% (+9.43pcts), with sales/management/R&D expenses rates of 3.00% (+0.98pct)/11.54% (+4.1pct)/13.01% (+4.26pct), respectively; management expenses were 0.461 billion yuan (+19.16%), mainly due to the company's increased amortization of variable management expenses and equity incentive expenses; R&D expenses were 0.52 billion yuan (+14.13%), mainly due to the company increasing wireless for key research projects Investment in transmission, button connectors and components, RF microwave interconnections, high-speed data transmission interconnections, high-reliability optoelectronic interconnects, liquid-cooled connectors, relays and switches, aerospace motors, high-speed motors, civil motors, and new energy technology research and product development.

Furthermore, at the end of 2024Q3, the company's accounts receivable were 4.844 billion yuan, up 54.69% from the beginning of the period, mainly due to fluctuations in demand in traditional supporting fields and changes in customer payment settlement models; inventory was 1.797 billion yuan, up 69.08% from the beginning of the period; and contract liabilities were 0.086 billion yuan, up 17.86% from the beginning of the period.

The amount of daily related transactions indicates that orders are expected to be placed, and the company's performance is expected to recover in the second half of the year. According to the announcement, the related parties are aerospace science and industry companies and Aerospace Fenghua. The estimated amount of the company's daily transactions in 2024 is 2.538 billion yuan, which is a significant increase (+115.45%) compared to the actual amount of about 1.178 billion yuan in 23 (+115.45%), while the actual amount for 23 is lower than the 2.377 billion yuan forecast for 23, mainly because customer orders fell short of expectations. Among them, the amount associated with product sales is expected to increase to 2.3 billion yuan, an increase of 118.22% compared to the actual occurrence of about 1.054 billion yuan in 23; the amount associated with purchasing raw materials from related parties is expected to increase to 0.22 billion yuan, an increase of 94.69% compared to the actual 0.113 billion yuan in 23; the amount associated with the procurement of fuel and power from related parties is expected to increase to 0.018 billion yuan, compared to about what actually occurred in 23 0.011 billion yuan increased by 63.64%. We believe that 2024 order expectations will continue to grow, supporting the company's performance.

Profit forecast: The company is a key electronic component company, and medium- to long-term performance is expected. The company's net profit from 2024 to 2026 is 0.688, 0.909, and 1.116 billion yuan respectively, corresponding EPS is 1.51, 1.99, and 2.44 yuan, respectively, and corresponding PE is 37.11, 28.11, and 22.89 times, respectively, maintaining the “recommended” rating.

Risk warning: macroeconomic development risk, market or business operation risk, defense budget falling short of expectations.