Baichu Electronics released its three-quarter report. In Q1-Q3 of 2024, it achieved revenue of 1.301 billion yuan (yoy +31.19%), net profit of 0.726 billion yuan (yoy +26.84%), deducting non-net profit of 0.692 billion yuan (yoy +30.97%).

Among them, 2024Q3 achieved revenue of 0.417 billion yuan (yoy +26.27%, qoq -16.98%), net profit to mother of 0.235 billion yuan (yoy +11.63%, qoq -21.2%), deducting non-net profit of 0.221 billion yuan (yoy +17.92%, qoq -23.4%). Q2 is the company's peak season. Due to seasonality, Q3 revenue declined month-on-month, but still achieved rapid year-on-year growth. We are optimistic that the company's share in the high-power cutting market will continue to increase. With the gradual implementation of new products such as intelligent welding, revenue is expected to continue to grow rapidly and maintain a “buy” rating.

Revenue continues to grow rapidly, and gross margin remains high

24Q1-24Q3's revenue in the same quarter increased by 40.3%/29.0%/26.3%, and net profit to mother increased by 46.6%/29.4%/11.6% in the same quarter. The company's revenue has maintained rapid growth, mainly due to the continuous increase in the number of orders for the laser processing control system business, and the number of orders for the intelligent cutting head business has increased dramatically. In terms of profitability, 24Q1-Q3's gross profit margin was 81.6%, an increase of 1.2 pct over the previous year. 24Q1-24Q3's gross margin in a single quarter was 79.3%/82.8%/82.4%, and Q3 gross margin was +1.7 pct year over year, maintaining a high level. We believe that the company may continue to benefit from the increase in domestic demand for high-power thick plate cutting and the continuous expansion of foreign application scenarios, and revenue is expected to maintain rapid growth. The company has accumulated underlying technology, and its business structure is mainly software. As high-power control systems continue to grow, gross margin is expected to maintain a high level.

Management/finance expense ratios have increased, and cash flow is good

24Q1-Q3's net interest rate to mother was 55.8%, -1.9 pct year on year, minus non-net interest rate of 53.2%, year-on-year -0.1 pct, sales/management/R&D/finance expenses ratio 5.04%/5.90%/12.07%/-1.87%, -0.25pct/+0.01pct/-3.17pct/+1.85pct year-on-year. Management and finance cost rates have increased. The cash flow received from 24Q3 sales of products was 0.43 billion yuan, an increase of 13.3%, and sales revenue/revenue reached 103%, which remained at a high level; the net operating cash flow was 0.229 billion yuan, a decrease of 2.4%. The company maintains a good overall profitability and cash flow situation.

Demand for high-power cutting continues to be released. Concerned about the implementation of intelligent welding, the company is expanding the laser cutting business vertically based on existing core technology, laying out the fields of intelligent cutting heads and industrial Internet; based on the horizontal expansion of industrial automation, it lays out the fields of precision processing and intelligent welding.

The cutting system benefits from the release of demand for high-power cutting. In terms of intelligent welding systems, the company's products have the advantage of being teach-free and intelligent. As the solution gradually matures, the company's second growth curve is expected to gradually open up.

Profit forecasting and valuation

We expect the company's 2024-2026 EPS to be 4.78, 6.55, and 8.88 yuan, respectively (maintaining profit forecast). Comparatively, the company's 2025 Wind unanimously anticipated an average PE value of 37.2 times, giving the company 37.2 times PE in 2025, with a target price of 243.42 yuan (previous value of 195.58 yuan), maintaining a “buy” rating.

Risk warning: macroeconomic fluctuations; technology implementation results fall short of expectations.