Event: Zhejiang Rongtai released its report for the third quarter of 2024 on October 30, 2024? 24Q1-Q3 net profit increased 46.3% year on year, net interest rate 20.6%, high profit quality1) 24Q1-Q3: The company achieved revenue of 0.809 billion yuan, up 38.9% year on year; net profit to mother was 0.167 billion yuan, up 41.5% year on year; after deducting non-net profit of 0.155 billion yuan, up 46.3% year on year; in the first three quarters, the company's gross profit margin was 35.0% and net profit margin 20.6%, mainly due to increased demand and sales growth for thermal insulation components for new energy vehicles .

2) 24Q3: Revenue of 0.311 billion yuan, up 33.1% year on year; net profit to mother was 0.066 billion yuan, up 36.1% year on year; after deducting non-net profit of 0.062 billion yuan, up 35.9% year on year, weighted average return on net assets was 3.78%; net interest rate for the reporting period was 21.1%, net interest rate after deducting non-net interest rate of 19.8%, and the company's profit quality was high.

Product barriers are high, customer stickiness is strong, and market share continues to grow. According to Frost & Sullivan's research, the compound growth rate of the world mica materials market is expected to be 18.00% in 2023-2027, and the market size will reach 41.81 billion yuan in 2027. The company's original integrated molding process for gluing and pressing extends mica products from a two-dimensional structure to a three-dimensional structure, making the performance of mica products for new energy vehicles leading the domestic market, and has huge market potential. It has established a strong technical barrier for the company and ensures a stable gross margin.

The company is committed to deep interactive research and development with customers, and has been recognized by leading customers such as Tesla, Mercedes-Benz, BMW, Volvo, Volkswagen, and Ningde Times for a long time. It has disclosed a fixed project amount of about 9.238-9.963 billion yuan.

Non-mica R&D drives expansion in multiple fields. Overseas layout helped increase performance in the first three quarters of 2024. The company's R&D cost rate was 5.7%. It is mainly used to develop non-mica products such as thermal loss protection insulators (mica products) for new energy vehicles and new lightweight safety structural components. In 2024, the new product field, polymer lightweight materials, was selected by North American customers, and the company's performance and valuation are expected to rise.

In 2024 H1, the company plans to set up subsidiaries in Mexico and Thailand through Singapore's Rongtai to invest in the construction of a new energy auto parts production project with an annual output of 0.5 million sets, with an investment amount of 10.88 million US dollars. The project implementation is expected to meet overseas business development needs and improve the overseas supply chain system.

Profit forecasting and valuation

We expect the company's 2024-2026 revenue to be 1.08, 1.53, and 2.1 billion yuan, up 35.3%, and 37.1% year-on-year, and 3-year CAGR of 37.9%; net profit to mother of 0.229, 0.331, and 0.466 billion yuan, up 33.5%, 44.3%, and 40.8% year-on-year, respectively. The 3-year CAGR will reach 39.4%, corresponding EPS of 0.63, 0.91, and 1.28 yuan. The company is a leader in mica materials to protect batteries for new energy vehicles from getting out of control. It has a strong moat, abundant orders, high performance growth, and maintains a “buy” rating.

Risk warning

Global supply chain risks, overseas demand falls short of expectations, and progress in technology updates falls short of expectations