Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 0.381 billion yuan, a year-on-year increase of 30.32%, and net profit to mother of 0.072 billion yuan, an increase of 11.53% over the previous year; after deducting non-return net profit of 0.057 billion yuan, a year-on-year increase of 26.34%.

Results were in line with expectations, and the company continued its growth momentum in Q3. In the 2024Q3 quarter, the company achieved revenue of 0.126 billion yuan, a year-on-year increase of 37.35%, net profit to mother of 0.024 billion yuan, a year-on-year increase of 38.49%, after deducting non-return net profit of 0.018 billion yuan, an increase of 29.91% year-on-year.

Gross margin fluctuates slightly, and cost control is good.

The company's gross margin for the first three quarters of 2024 was 42.67%, down 2.73 pct year on year, net margin was 18.90%, down 3.18 pct year on year. In the 2024Q3 single quarter, the company's gross margin was 41.20%, down 4.12pct year on year, and the net margin was 18.89%, up 0.22pct year on year. The main reason for the decline in the company's gross margin in the first three quarters was probably due to changes in the structure of CNC machine tool models that were delivered and revenue confirmed. High-margin products accounted for a relatively high share in the same period last year.

The cost ratio for the first three quarters of 2024 was 20.70%, down 3.03pct year on year. Among them, the ratio of sales/management/finance/R&D expenses was 9.21%/6.00%/-0.52%/6.00%, -2.23pct/-0.67pct/+0.14pct/-0.27pct, respectively. The decrease in the cost ratio reflects the continuous improvement of the company's operating quality and efficiency.

The equity incentive plan has been implemented, and the company's future development momentum is strong. The company announced the 2024 Restricted Stock Incentive Plan (draft) on October 29. It intends to grant the incentive recipients no more than 0.8874 million shares in total, accounting for approximately 0.87% of the company's total share capital at the time of announcement. A total of 66 people were initially awarded incentives, including directors, senior management, core technical personnel, and other core key personnel. In terms of performance assessment target values, 2025 revenue increased by 65% or more compared to 2023 or net profit increased by more than 50%, and 2026 revenue increased by more than 100% or net profit by more than 80% compared to 2023, and the revenue or net profit target can be achieved. We believe that implementing the 2024 restricted stock incentive plan can fully mobilize and stimulate the enthusiasm of the core team, enhance the competitiveness and innovation ability of the company, and demonstrate the company's confidence in future development.

Investment advice: As a leading high-end CNC machine tool in China, the company's technical strength is constantly being strengthened, and production capacity construction is progressing in an orderly manner. In the context of domestic substitution of industrial parent machines, the company has plenty of room for future growth. Considering the company's production capacity release, downstream demand, and order delivery pace, we lowered the company's net profit to mother in 2024-2026 to 1.24 (previous value 1.43) /1.72 (previous value 1.97) /2.46 (previous value 2.80) billion yuan, respectively. The corresponding PE was 57.9/41.8/29.2 times, respectively, to maintain the “gain” rating.

Risk warning: macroeconomic fluctuations, increased industry competition, and production capacity release falls short of expectations.