Incident: The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved revenue of 3.439 billion yuan, a year-on-year increase of 19.77%; realized net profit to mother of 0.775 billion yuan, an increase of 8.43% year on year; realized deducted non-net profit of 0.752 billion yuan, an increase of 3.25% year on year. In 2024, Q3 achieved operating income of 1.322 billion yuan, up 46.92% year on year, 16.26% month on month; realized net profit of 0.293 billion yuan, up 31.04% year on year and 9.93% month on month; deducted non-net profit of 0.291 billion yuan, up 32.85% year on year and 13.31% month on month.

Benefiting from increased downstream demand, Q3 revenue and profit both increased year on year: in Q3 of 2024, the company's operating income and net profit attributable to shareholders of listed companies achieved rapid year-on-year growth. The main reason was that the market in all supporting fields of the company grew. In Q3 2024, the company's comprehensive gross margin was 34.16%, -4.35pcts year on year; the net margin was 22.13%, -2.80pcts year on year. The impact of the reduction in gross margin on net profit margin was offset by a decrease in the overall cost ratio during the period. In terms of expenses, the company's sales, management, R&D and financial expenses for the first three quarters of 2024 were 1.50%/3.25%/3.55%/-0.16%, respectively, with year-on-year changes of +0.10/-0.65/-1.50/+0.05pct, respectively.

The Hungarian investment plan was announced, and the overseas market was planned: in 2023, the company's export sales revenue accounted for about 30% of total revenue, an increase compared with previous years. In August 2024, the company announced an overseas investment project. The company plans to invest and establish a wholly-owned subsidiary Farah Electronics Hungary Co., Ltd. in Hungary with its own capital of no more than 0.1 billion yuan to further implement the company's international strategic layout and enhance the company's overall competitiveness. In 2024 H1, the company achieved independent R&D and production of metallized film materials for film capacitors, established the company's unique equipment and material supply chain system through cooperative development and continuous internal innovation, and closely followed market demand to achieve iterative product upgrades and product originality development. We are optimistic about the company's competitive advantage in the film capacitor market. Further release of demand in the film capacitor market is expected to drive the company's business to the next level.

Benefiting from the rapid growth of the NEV market, film capacitors are used by many car companies: According to Fortune BusinessInsights data, the global NEV market size is about 500.48 billion US dollars in 2023, and the market size is expected to reach 671.47 billion US dollars in 2024. The global NEV market is expected to grow to 1.89 trillion US dollars in 2032. The CAGR of the global NEV market in 2024-2032 is about 13.8% Benefiting from the continuous expansion of the NEV market, the company has a broad market space for film capacitor products. In March 2024, the company stated that its film capacitors supply most domestic and foreign NEV companies. In 2024 H1, the company will actively expand high-end customers in the fields of new energy vehicles, photovoltaics, energy storage, wind power, industrial control, rail transit, home appliances, etc. Through technology research and development, improving the level of equipment automation, optimizing supply chain management, and improving the construction of information systems, the company's overall competitiveness has been further enhanced. As of May 2024, there has been a certain increase in the capacity utilization rate of photovoltaic product production lines in the Dongfu production area, and the capacity utilization rate of the NEV product line is sufficient.

Maintaining the “gain” rating: The company is mainly engaged in R&D, production and sales of film capacitors. The company's products have been widely used in various industries such as industrial control, photovoltaics, wind power, new energy vehicles, rail transit, smart grids, home appliances, and lighting. In 2024 H1, the company continued to expand high-end customers in the field of new energy vehicles, and the company's overall business situation progressed steadily. Benefiting from the country's increased investment in the field of new energy vehicles, demand in the NEV market is expected to grow rapidly, and the company's film capacitor business revenue is expected to grow. Considering that the industry's boom in the first half of the year fell short of expectations, we lowered our profit forecast. We expect the company's net profit to be 1.14 billion yuan, 1.38 billion yuan, and 1.64 billion yuan respectively in 2024-2026, EPS is 5.07, 6.13, 7.29 yuan/share, and PE is 25X, 21X, and 17X, respectively.

Risk warning: the risk of price fluctuations of major raw materials, downstream demand falling short of expectations, increased industry competition, and production capacity release falling short of expectations.