Key points of investment

Steady increase in revenue, pressure on profit or due to increased R&D expenses: in the first three quarters of 2024, the company achieved revenue of 0.416 billion yuan, +26.93%; 2024Q1-Q3 realized net profit to mother -0.021 billion yuan, -195%; deducted non-net profit -0.033 billion yuan, or -123.46% year-on-year. We believe that the main companies continued to increase their efforts to expand and support new businesses, so that R&D expenses and sales-related expenses increased rapidly compared to the same period last year, affecting profits level. Q3 revenue for a single quarter was 0.138 billion yuan, +13.40% year over month, -15.19% month on month; net profit to mother was -0.011 billion yuan, -4.93% year on year, -340.68% month on month; minus non-net profit was -0.017 billion yuan, -25.78% year on year and -157.86% month on month.

Profitability increased steadily, and expenses during the period affected net profit performance: the company's gross margin for the first three quarters of 2024 was 47.79%, +0.66pct year on year; net sales margin was -5.13%, -2.93pct year on year; the period expense ratio was 53.20%, +1.68pct year on year, of which the sales/management/R&D/finance expense ratios were 19.66%/10.82%/23.69%/-0.98%, respectively, +0.10/-0.81/+0.49pct. The company continued to increase R&D investment. The R&D investment in the first three quarters of 2024 was 0.099 billion yuan, +31.94% over the same period last year. Q3 gross margin for the single quarter was 47.26%, +4.33pct year on year, +0.10pct month on month; net sales margin was -8.32%, +0.67pct year on year, and -6.72pct month-on-month.

Inventory & contract liabilities increased, and net cash flow from operating activities was high and net outflows: as of the end of 2024Q3, the company's inventory was 0.601 billion yuan, +28.85% year over year; contract debt was 0.18 billion yuan, +6.43% year over year; accounts receivable were 0.183 billion yuan, +19% year over year, indicating a slowdown in the pace of order repayment.

2024Q3's net cash flow from operating activities was -0.08 billion yuan, +288% YoY.

Focusing on cutting-edge development of fine laser processing, the industrial layout is promising: the company is actively developing cutting-edge products in the fields of SiC ingot slicing, Mini/Micro LED, etc., with rapid breakthroughs from 0 to 1 on multiple tracks. (1) High-power solid-state ultrafast laser technology: The company further develops high-power ultrafast lasers on the basis of existing laser technology. High-power picosecond lasers achieve an average infrared power output of 200W, green light output of 150W or more, and ultraviolet output of 100W or more. High-power femtosecond lasers achieve 200W average infrared power output and have mastered 300W power output technology.

(2) SiC ingot laser slicing: Silicon carbide ingot laser slicing equipment with 8-inch silicon carbide ingot processing has been successfully verified and used by many leading silicon carbide material manufacturers (3) Micro LED massive transfer equipment: Since receiving the first customer order in 2022, the company has actively promoted products and has now received orders from many leading manufacturers.

Profit forecast and investment rating: Considering factors such as the company's R&D investment and equipment acceptance pace, we expect the company's net profit forecast for 2024-2026 to be 0.05 (original value 0.6) /0.75 (original value 0.9) /0.91 (original value 1.2) billion yuan. The PE corresponding to the current market value is 496/35/29 times. Based on the company's future growth in various fields such as SiC and MLED, it maintains an “incremental” rating.

Risk warning: Downstream production expansion falls short of expectations, product expansion falls short of expectations, etc.