Incidents:

Recently, the company issued an announcement stating that the company's semiconductor vacuum pumps are continuing to be tested. Currently, they are mainly semi-strict and strict processes. The comments on this are as follows:

The gross margin increased, and the period expense ratio decreased. The company's gross sales margin for the first three quarters of 2024 was about 40.74%, about +0.67pct year on year; the net profit margin was about 25.32%, +1.87pct year on year. Profitability is expected to increase further as the semiconductor business expands in the future. The company's cost ratio for the period was 11.72%, -0.93pct year on year. Sales/management/R&D/finance expenses accounted for 4.74%/4.34%/-1.20% of operating income, respectively. The main R&D and financial expenses ratio were -0.86pct and -0.37pct year-on-year, and the overall cost control was good. In the first three quarters of 2024, the company achieved a net operating cash flow of 0.469 billion yuan, including a net operating cash flow of 0.082 billion yuan in Q3.

The traditional main business is progressing steadily, and the demand for air compression equipment is broad. The company's compressors (groups) are also divided into two major products: refrigeration and air compression. Refrigeration products are mainly divided into commercial central air conditioning compressors, refrigeration compressors, and heat pump compressors. At present, refrigeration compression is expected to gradually recover while the heat pump market is showing a rapid growth trend worldwide, especially in Europe, North America and East Asia, where the market is large and continues to grow. This is mainly due to increasing global attention to energy saving and emission reduction and environmental policies, as well as increasing consumer demand for efficient, comfortable and environmentally friendly cooling and heating.

In the field of air compression, the domestic air compressor stock market is huge, especially the potential need to renew old equipment. The company continues to iteratively develop new products in various technical routes such as dry screws/oil-free vortexs/air levitation/magnetic levitation/centrifuges, and the overall business is expected to gradually break through.

Photovoltaics are under pressure in the short term, and the semiconductor business is worth looking forward to. The company's vacuum pump products are mainly in the fields of photovoltaics and semiconductors. Among them, the photovoltaic industry is mainly in the crystal and cell sectors. Affected by the rapid expansion of upstream production capacity in the early stages, the photovoltaic crystal and cell sectors are under pressure. Currently, semiconductor vacuum pumps are mainly dominated by foreign companies, and European, American and Japanese brands account for about 90% of the total market. Localized replacement of vacuum pump equipment in the semiconductor industry is imminent. The company continues to iteratively develop a series of products. Semiconductor vacuum pumps are expected to continue to increase their market share, helping the semiconductor industry to replace imports and make the supply chain autonomous and controllable.

Investment rating: The company's net profit for 2024-2026 is estimated to be 0.925 billion, 1.025 billion, and 1,161 billion, respectively. The corresponding PE is 11x, 10x, and 9x, respectively, covered for the first time, giving it an “increase in wealth” rating.

Risk warning: New product development falls short of expectations; risk of failure of profit forecasting and valuation models