Matters:

The company achieved operating income of 3.179 billion yuan (YoY +32.97%); net profit to mother of 0.187 billion yuan (YoY +1156.98%); deducted non-net profit of 0.178 billion yuan (YoY +746.24%); and gross profit margin of 21.68% (YoY +5.46pcts) in the first three quarters of 2024. 2024Q3 achieved revenue of 1.206 billion yuan (YoY +49.27%, QoQ +10.81%); net profit of 0.09 billion yuan (YoY +432.26%, QoQ +29.86%); deducted non-net profit of 0.087 billion yuan (YoY +389.07%, QoQ +31.27%); gross margin of 24.93% (YoY+10.76pcts, QoQ +4.57pcts).

Commentary:

The product structure continued to be optimized, and Q3 performance improved at an accelerated pace. The Q3 profit margin was 7.5%, up 1.1 pcts month-on-month, and improved for four consecutive quarters. Looking at profit breakdown, gross margin continued to increase month-on-month, mainly due to increased demand for high-multi-layer PCBs in the server market, driving the company's revenue and profit levels to continue to improve. Furthermore, according to our estimates, the 24Q2 and Q3 amortized equity incentive costs are about 15 to 62 million yuan. After the equity incentive fee is added, the net profit for 24Q3 is estimated to be 0.152 billion yuan, and the profit margin is expected to reach 12.62%, an increase of 4.8 pcts over the previous month.

AI servers are delivered in large quantities, and 800G switch products are delivered in batches. AI server: The AI product projects of several of the company's customers have successfully achieved mass production, driving the company's server product revenue scale to achieve a significant year-on-year increase. The proportion of 24Q1-3 server products reached 42.45%, an increase of 20.87 pcts over the previous year. 800G switch: The company's 800G high-speed switch related products have been ordered in batches one after another. In addition, the company increased R&D investment in 24Q3, and R&D expenses in a single quarter reached a record high. It is mainly used for R&D of high-end products such as next-generation AI servers and high-speed switches. In the future, with the deployment of AI servers and 800G switches, the company's product structure is expected to continue to be optimized, and the profit level is expected to further increase.

R&D focuses on core dominant businesses, and new products are expected to be released one after another. In the field of communication networks, 800G products have been ordered in batches, and 1.6T products are being developed. In the field of AI servers and peripherals, AI servers have been delivered in large quantities, and next-generation AI server products are being developed, increasing R&D investment in 400G/800G optical modules, etc. In the field of low-orbit satellites, we continue to invest in research and development of satellite interconnection space-borne technology, and cooperate with many customers to develop related products.

High-end automotive products are gradually being expanded, boosting steady growth in performance. The company completed the development of products such as autonomous driving, smart cockpit, and power energy, which enhanced the market competitiveness and customer recognition of the company's automotive electronic PCB products. In the future, as automobiles further develop towards electrification and intelligence, related businesses are expected to grow steadily.

Investment advice: The company has first-class technology, products and customers, and is expected to benefit deeply from the rapid development of the AI industry. The company's Q3 performance achieved significant year-on-month improvement. Considering that the growth of the company's AI server and switch business led to performance exceeding expectations, we raised the company's 24-26 profit forecast from 0.186/0.545/0.816 billion yuan to 0.352/0.804/0.956 billion yuan. Considering that the company is in a period of rapid growth at an inflection point in performance, with rapid expansion on the demand side, profit elasticity under high operating leverage is expected to continue to exceed expectations and maintain a “recommended” rating.

Risk warning: The development of the AI industry falls short of expectations, the introduction of AI server customers falls short of expectations, the introduction of high-speed switch customers falls short of expectations, the rise in production capacity falls short of expectations, and the introduction of automotive customers and mass production of products fall short of expectations.