3Q24 results slightly lower than market expectations

The company announced 1-3Q24 results: revenue of 1.91 billion yuan, up 5.7% year on year, net profit of 0.23 billion yuan, down 6.9% year on year, after deducting non-net profit of 0.22 billion yuan, up 11.6% year on year. The performance was slightly lower than market expectations. We believe it was mainly due to delays in special demand. Looking at a single quarter, 3Q24's revenue was 0.64 billion yuan, up 3.1% year on year, and net profit to mother was 74.87 million yuan, down 8.8% year on year, after deducting non-net profit of 71.51 million yuan, up 7.6% year on year.

Gross margin fluctuates due to changes in business structure. 1-3Q24/3Q24 The company's comprehensive gross margin was 33.9%/33.0%, down 3.0 ppt/4.6 ppt year on year. We estimate that it is mainly due to fluctuations in gross margin due to changes in business structure. The company's expense ratio for the 3Q24 period was 23.8%, down 1.9ppt year on year. Among them, sales/management/R&D/finance expense ratios were -0.2pp/ -0.6pp/ -1.3pp/+0.1ppt, respectively.

1-3Q24/3Q24 The company's net interest rate to mother was 11.9/ 11.7%, down 1.6 ppt/1.5 ppt year on year. We estimate that some government subsidies were reduced year on year. 1-3Q24/3Q24 The company's deducted non-net interest rate was 11.5%/11.1%, up 0.6ppt/0.5ppt year over year.

Marginal improvement in operating cash flow. 1-3Q24/3Q24 The company's net operating cash flow inflow was 1.62 million/ 24.94 million yuan, with a year-on-year increase of 0.21 billion yuan/40.95 million yuan, respectively. The net inflow trend was maintained in 3Q24. As of the end of 3Q24, the company's notes and accounts receivable were 1.29 billion yuan, an increase of 0.19 billion yuan over the previous year, and inventory was 2 billion yuan, an increase of 0.17 billion yuan over the previous year.

Development trends

Continue to monitor the growth trend of the “two-plane” business. On the one hand, as demand for gas turbines localization increases, we believe that the company can benefit from growth with its excellent technical advantages and rich product models. On the other hand, as overseas civil aviation demand rises, we believe the company's chassis business is expected to benefit from growth. We recommend continuing to pay attention to the company's “two-plane” business growth trend, which is expected to contribute to the company's performance growth elasticity.

Nuclear energy The nuclear power business is developing steadily. The 2022 and 2023 National Standing Committee approved 10 nuclear power units respectively. A total of 11 nuclear power units have been approved so far this year. We believe that with the boom in downstream demand, demand for related nuclear power materials, nuclear power equipment, etc. is expected to gradually be released, and we are concerned about the future growth of the company's nuclear power and nuclear energy business.

Profit forecasting and valuation

Maintain an outperforming industry rating. Considering the delay in special demand this year, the profit forecast for 2024 was lowered by 6% to 0.3 billion yuan. Considering that demand for gas turbine localization is expected to be further released next year, the profit forecast for 2025 was raised by 3% to 0.4 billion yuan. The current transaction is 32.2x/24.6x 2024/2025 P/E. Considering this year's special demand delay and valuation center upward, the valuation was switched to 2025, and the target price was raised 29% to 16.80 yuan, corresponding to 28.7x 2025 P/E, with 17% upward space.

risks

Demand and prices for special applications fluctuate, domestic gas engine replacement is slower than expected, and new product development falls short of expectations.