Incident: The company released its report for the third quarter of 2024. The first three quarters of 2024 achieved revenue of 26.466 billion yuan, a year-on-year increase of 17.62%; realized net profit to mother of 1.067 billion yuan, a year-on-year decrease of 19.91%; and deducted non-net profit of 1.008 billion yuan, a year-on-year decrease of 2.72%. In Q3 2024, we achieved revenue of 9.838 billion yuan, up 11.37% year on year and 10.74% month on month; realized net profit of 0.507 billion yuan, down 0.27% year on year and up 86.82% month on month; realized deducted non-net profit of 0.492 billion yuan, up 7.28% year on year and 93.32% month on month.

Revenue grew steadily, and the profit side continued to be under pressure: The company's revenue grew steadily in the first three quarters of 2024, mainly due to growth in the three major businesses of electronic circuits, touch displays, and precision manufacturing. Among them: 1) Electronic circuit business customer business resumed growth and market pattern concentration. 2) Downstream demand for touch display business is recovering. 3) The new energy sector of precision manufacturing has achieved rapid growth due to the impact of new material numbers added by major customers and the business volume of new domestic customers. The company's gross margin for the first three quarters of 2024 was 13.65%, down 0.32pct year on year; net profit margin was 4.03%, down 1.89pct year on year; of these, Q3 company's gross margin was 14.65%, down 0.16 pct year on year, up 2.05 pct month on month; net margin was 5.16%, down 0.59 pct year on year, up 2.12 pct month on month. Q3 Profitability declined year-on-year, mainly due to production capacity at the company's new base in a climbing phase, one-time costs due to internal base integration, expansion of losses in the company's LED business, reduction in non-recurring profit and loss compared to the same period, and loss of exchange earnings due to exchange rate fluctuations. In terms of expenses, the company's sales/management/R&D/finance expense ratios for the first three quarters of 2024 were 1.16%/2.78%/3.61%/0.37%, respectively, with year-on-year changes of +0.04/-0.14/+0.27/+0.17pct, respectively.

AI terminals drive the volume and price of soft boards have risen sharply, and I am optimistic about future FPC profit performance: as AI end-side applications continue to advance and a new round of innovation cycle arrives, end-side computing power and customization requirements are getting higher and higher, soft board design is becoming more and more complicated, and the demand market is gradually recovering, and product value is showing a continuous growth trend. In the third quarter of 2024, major customers launched new products and officially launched the first year of AI phones, which is expected to stimulate a new wave of switching. We believe that as a leading global FPC company, the company has a strong competitive advantage in soft board technology. In the future, the soft board process will continue to iterate, and product value will show an upward trend. In terms of production capacity, the company's Thai factory plans to install equipment by the end of the year and is expected to be put into operation in the first half of next year. As the company's soft board business begins to expand in the future, it is expected to occupy more market share from the AI innovation cycle and further enhance the company's profitability.

The new energy business grew rapidly in the first three quarters, with new materials+new production capacity to help future growth: In the first three quarters of 2024, the company's new energy business achieved sales revenue of 6.16 billion yuan, an increase of 36.89% over the previous year. The rapid growth in the new energy business was mainly due to the recovery of major customers, new material numbers, and continued business growth for other new domestic customers. In terms of precision manufacturing products for new energy vehicles, the company mainly promotes structural parts, battery trays, white bodies, and water-cooled products to customers. In terms of production capacity, mass production at the new base is currently climbing smoothly and losses have been reversed. With the iteration of models from major customers in the future and the continuous introduction of new domestic customers, the factory utilization rate gradually increases, and the company's new energy business is expected to open up greater profit margins.

Maintaining a “buy” rating: The company continues to focus on the “A+T” two-wheel drive core strategy. In the field of consumer electronics, the company will maintain the technical advantages of high-end soft boards, continuously upgrade soft board process technology, and seize the opportunities brought by the AI innovation cycle. Furthermore, the company's Thai factory has entered the final stage, and future production capacity will be gradually released. In terms of the new energy business, the company continues to support R&D and production for T customers. As major customers add new material numbers in the future, the introduction of new domestic customers, and the continuous increase in the operating rate of the new base, the revenue contribution of the new energy business is expected to increase further, becoming the company's second growth curve. In terms of LED and touch displays, under the premise of controlling inventory, the company improves the quality of product operation by adjusting the product structure, reducing costs and increasing efficiency, and profitability is expected to gradually improve. The company's net profit for 2024-2026 is estimated to be 1.835 billion yuan, 2.727 billion yuan, and 3.448 billion yuan respectively, EPS is 1.08 yuan 1.60 yuan and 2.02 yuan respectively, and the corresponding PE is 28X, 19X, and 15X, respectively.

Risk warning: risk of exchange rate fluctuations, downstream demand recovery falling short of expectations, risk of technological innovation, risk of market competition.