The performance slightly exceeded our expectations

The company announced 1-3Q24 results: revenue of 2.038 billion yuan, a year-on-year increase of 26.6%, and net profit to mother of 0.281 billion yuan, an increase of 32.3% over the previous year. Looking at a single quarter, 3Q24's revenue was 0.652 billion yuan, up 39.9% year on year, and net profit to mother was 0.084 billion yuan, up 73.2% year on year. The third quarter results slightly exceeded our expectations, mainly due to the company's new business expansion and profitability exceeding expectations.

The increase in scale effect has led to an increase in the company's gross margin. 3Q24/1-3Q24 The company's consolidated gross margin increased by 0.3/decreased by 1.7ppt to 31.9%/30.4% year-on-year, respectively. The increase in gross margin was mainly due to the development of large-scale hydraulic components and breakers, followed by an increase in the company's share of exports, and a reduction in the price of raw materials. The 3Q24 sales/R&D/financial expenses ratio was -0.7/-1.4/+0.1ppt, respectively. The decline in the cost ratio was mainly due to the increase in the company's revenue, and the scale effect was evident.

Profitability increased, and net operating cash flow decreased. The net profit margin of the 1-3Q24 company increased 0.6ppt to 13.8% year on year, and the net profit margin of the 3Q24 company increased 2.5ppt to 12.9% year on year. The increase in net profit margins was clearly driven by a reduction in losses in new businesses. The company's net cash flow from operating activities in 3Q24 was 0.048 billion yuan, and the net cash flow from operating activities for the same period in 3Q23 was 0.038 billion yuan.

Development trends

Domestic excavator demand rebounded, export demand corrected in the second half of the year, and the company's product penetration rate continued to increase. After domestic excavator sales improved in March, export sales increased slightly in the second half of the year due to an increase in base numbers and Southeast Asia's boom. Benefiting from the increase in excavator boom, the company's sales demand for hydraulic parts increased in the 3rd quarter. In August of this year, the company and Kawasaki Heavy Industries established a subsidiary, Aisaki Seimitsu. Aisaki Precision mainly develops, produces and sells high-end hydraulic pumps, hydraulic valves, and hydraulic rotary motors. It is expected that the company's market share in high-end hydraulic components will increase.

The company's new business development continues to gain strength. The company's new business expanded into lithium battery PACK business and robot and tool business. The lithium battery PACK business mainly targets new energy products for construction machinery and manufactures special scenario-based PACK batteries. This year, the revenue of the lithium battery PACK business increased significantly. Last year, Yantai Aichuang Robotics Technology, a wholly-owned subsidiary of the company, achieved a net profit of -41.2897 million yuan, and Yantai Eddy Tools achieved a profit of -11.8389 million yuan. We expect the robot and tool business to drastically reduce losses this year and drive the company's profit margin to increase.

Profit forecasting and valuation

Considering that the revenue growth of the company's new business exceeded expectations, we increased net profit to mother by 7.8%/13.3% in 2024/2025 to 0.356/0.41 billion yuan. The current stock price corresponds to 2024/2025 41.0/35.6 times the price-earnings ratio. Considering the increase in profit, we raised the company's target price by 7.1% to 20.88 yuan. The target share price corresponds to the 2024/2025 price-earnings ratio of 49.2/42.7 times, with 20% room for growth compared to the current stock price.

risks

Competition in the industry intensified, overseas demand declined, and new business expansion fell short of expectations.