Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, it achieved revenue of 4.385 billion yuan, net profit of 0.04 billion, gross profit margin of -10.5%, -4.1pct; 24Q3 achieved revenue of 1.614 billion, +46.1% year on month, -1.1% month on month, net profit 0.029 billion year on year, +7.3% year on month, +710.4% month on month, gross profit margin 7.7% year on year- 7.4pct, -5.0pct month-on-month.

Performance review: There was a month-on-month increase in results in the 3rd quarter of 2024, mainly due to a 0.04 billion month-on-month reduction in R&D expenses, 0.02 billion in net income from changes in fair value, and a recovery in credit impairment losses (0.06 billion in 24Q2). However, from an operating perspective, the company's performance was under relative pressure. It is estimated that PV silver paste shipments were relatively stable month-on-month, and gross margin declined month-on-month. The judgment was that gross margin fluctuated due to the rapid rise in silver point prices in the second quarter. Furthermore, the reduction in semiconductor product prices also had an impact on profits.

The cost rate declined month-on-month during the period, and the ability to control expenses improved. The cost rate during 2024Q3 was 7.6%, down 0.7 pct from month to month; sales/management/finance/R&D expenses were 1.4%/1.8%/1.9%/2.6%, respectively, -0.2 pct/+0 month over month, respectively.

0pct/+1.9pct/ -2.4pct

The penetration of multi-line photovoltaic silver paste products is accelerating, and the semiconductor business is actively expanding customers. For the photovoltaic silver paste business, TOPCON's low solid content products have been recognized by the market, and the market share has been further increased; BC products have been shipped; HJT silver containing 30% silver-coated copper products have also been delivered in batches; laminated paste has been developed and reliability tested on the client side.

The development of multi-line products is expected to increase the company's overall market share. For the semiconductor business, orders in the photovoltaic market declined in the first half of 2024 due to industry adjustments, but orders in the consumer and industrial control markets rebounded slightly year-on-year. At the same time, the company focuses on the automotive sector, lays out a series of vehicle regulation products, and actively expands domestic and foreign car company customers, cooperates with many leading customers, and is expected to receive more orders for vehicle regulation products.

Profit forecast and investment rating: Considering the phased pressure on the photovoltaic and semiconductor industry, we are revising our performance. We expect the company to achieve net profit of 0.1/0.18/0.25 billion yuan in 24-26 years (0.2/0.35/0.43 billion in 24-26 years), -35%/+78%/+38% year-on-year. The current stock price corresponds to PE 101/57/41 times, respectively, and downgraded to an “increase in holdings” rating.

Risk warning: demand falls short of expectations; competition increases risk, etc.