3Q23 Net profit lower than market expectations
Eston announced 2023Q3 performance: Q3 revenue of 984 million yuan, month-on-month lower than the first quarter, an increase of 11% year-on-year;Q3 parent net profit of 43 million yuan, a year-on-year decline of 2.5%. Our comments are as follows:
The core component business fell short of expectations and robot sales grew strongly. 1) In terms of sub-business, the revenue growth rate of core components in the first three quarters was only 2.8% to 680 million yuan, mainly due to the unexpected impact of operation control market development; the revenue growth rate of industrial robots and intelligent manufacturing systems in the first three quarters exceeded 35% year-on-year, the sales volume of industrial robots exceeded 1.7w units, and the market share increased rapidly.
Gross profit margin is basically flat, period expense ratio optimization needs process. 1) 3Q23/1-3Q23 gross profit margin was 32.6%/32.6%, down 0.6/0.2ppt year-on-year. By region, overseas gross profit margin increased year-on-year, while domestic gross profit margin fluctuated due to market competition. 2) The year-on-year change of sales/management/financial expense ratio of Eston in the first three quarters was-0.2/-0.6/+0.4ppt, and the R & D expense ratio was +0.4ppt year-on-year. The overall main expense ratio was basically the same as that of the same period last year. 3) On the whole, the net profit margin of 3Q23 Company decreased by 0.6ppt year-on-year, basically flat compared with the previous month.
Overseas demand has picked up, looking forward to 2023Q4 power. According to the company communication, German Cloos and MAI signed up in the third quarter. 1) Cloos deep-ploughing thick plate welding, this year in Honglu steel structure as the representative of large steel structure customers to establish competitive advantage;2) MAI rooted in the middle and high-end system integration business, is expected to help Eston in overseas new energy battery customer collaboration.
Trend of development
The competitiveness of operation and control needs to be improved urgently. Since its establishment, Eston has perfected automation solutions based on motion controllers and servo drives through endogenous + extension (such as acquisition of TRIO). In 2023, under the change of AI new technology, the domestic operation control market is surging, ushering in a new round of technological innovation cycle, and the company needs to upgrade its products.
Profit forecast and valuation
As the expense ratio control is not obvious, we reduce the net profit by 7.1% to 260 million yuan (+53%) in 2023 and 22% to 420 million yuan (+64%) in 2024. The current share price corresponds to a P/E of 41x in 2024. Taking into account the 2024 pro-cyclical valuation repair, we lowered our target price by 15% to 24 yuan, corresponding to a P/E of 50x in 2024, with 23% room for increase, maintaining an outperforming industry rating.
Risk
The Group manages the risk of underperformance and fluctuations in quarterly profits.