occurrences

Lixun Precision released its report for the third quarter of 2024: in the first three quarters of 2024, the company achieved operating income of 177.177 billion yuan, a year-on-year increase of 13.67%; realized net profit to mother of 9.075 billion yuan, an increase of 23.06% over the previous year; and realized net profit without deduction of 8.117 billion yuan, an increase of 15.43% over the previous year.

Key investment points

24Q3 performance improved month-on-month, and profitability remained stable

2024Q3 achieved operating income of 73.579 billion yuan, up 27.07% year on year and 43.73% month on month; net profit to mother of 3.679 billion yuan, up 21.88% year on year, up 25.76% month on month; net profit after deducting non-return to mother of 3.158 billion yuan, up 9.71% year on year, up 13.74% month on month. In terms of profitability, in 2024, the company achieved a gross sales margin of 11.75%, down 0.94 pct from month to month; achieved a net sales margin of 5.47%, a decrease of 0.76 pct from month to month.

AI empowers consumer electronics, and the company's binding leading overseas customers is expected to continue to benefit

With the rapid development of AI technology, AI continues to move closer to the end side. As one of the best terminal devices for AI to be implemented on the end side, AI phones are on the eve of an industrial explosion. Apple unveiled its generative AI, Apple Intelligence, at the WWDC 2024 press conference. Its functions mainly include writing tools, image processing tools, understanding the importance of text, and an evolved version of Siri. The iPhone 16 is the first model designed from scratch for Apple Intelligence, and it is expected that subsequent new iPhones will also be equipped with Apple Intelligence. In the future, AI will be an important driver for the cyclical growth of mobile phone sales. According to IDC estimates, the number of AI mobile phone shipments in the Chinese market will be 37 million units in 2024, reaching 0.15 billion units in 2027, and the CAGR will be 59.45% in 2024-2027. The company has accumulated deep experience in the field of consumer electronics manufacturing. With solid product development capabilities, leading automated process development level, efficient lean manufacturing capabilities, and high-quality delivery standards, the company continues to receive high praise and full recognition from core customers. Furthermore, the company plans to achieve a revenue volume of 100 billion yuan in the consumer electronics sector other than major customers by 2032, and performance stability is expected to improve further. We believe the company is expected to continue to benefit as AI empowers consumer electronics and ignites the next wave of switching.

The acquisition of Leoni expands the automotive business, and the communications business progressed beyond expectations

In the automotive business, the company has formed a diversified product matrix such as automotive wiring harnesses, connectors, smart cockpits, and intelligent driving through rapid iteration capabilities and cost control awareness accumulated in the consumer electronics field. The company announced the acquisition of Leoni in September. Leoni is an established enterprise specializing in the development, production and sales of wiring systems and automotive cables. It has mature operators in Europe, the Middle East, Africa, America and Asia, and also has long-term stable cooperative relationships with mainstream customers around the world. The acquisition can enhance the company's R&D/procurement resources, customer channels, and global production and supply capabilities, and push the company forward to the top ten global Tier 1 goals. In terms of communication business, the company's communications sector business progress this year has exceeded expectations. It has now entered the supply pool of mainstream cloud vendors and equipment application customers around the world to carry out research and development of cutting-edge projects for mainstream customers in unmanned technical areas, such as preliminary research on high-speed connectivity solutions for 448G platforms. With the accelerated implementation of high computing power projects by domestic and foreign cloud vendors, we believe that the communications sector business is expected to significantly increase company profits in the next 2-3 years.

Profit forecasting

The company's revenue for 2024-2026 is 2653.23, 3123.38, and 358.627 billion yuan, respectively, and EPS is 1.89, 2.41, and 2.90 yuan respectively. The current stock price corresponds to PE of 21.5, 16.9, and 14.1 times, respectively. We believe that the company is expected to continue to benefit from the trend of AI empowering consumer electronics. At the same time, the automotive and communications business sector is expected to create new increases in the company's performance and maintain an “increase” investment rating.

Risk warning

Macroeconomic risks, risk of product development falling short of expectations, risk of increased industry competition, risk of downstream demand falling short of expectations.