Incidents:

The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 2.473 billion yuan, a year-on-year decrease of 1.76%, and net profit to mother of 0.098 billion yuan, a year-on-year decrease of 19.98%, after deducting non-return net profit of 0.085 billion yuan, a year-on-year decrease of 16.68%. Among them, the third quarter of 2024 achieved revenue of 0.721 billion yuan, a year-on-year decrease of 7.88%, net profit to mother of 0.023 billion yuan, a year-on-year decrease of 41.62%, and net profit after deducting non-return to mother of 0.014 billion yuan, a year-on-year decrease of 61.30%.

Short-term business pressure and profitability improved. The company's revenue and performance continued to decline during the reporting period, mainly due to the impact of the international environment, and the performance of the company's overseas subsidiaries did not meet expectations. However, the company's profitability improved significantly. The gross profit margin for the first three quarters of 2024 was 17.20%, up 1.36 pct year on year, and the gross profit margin for the third quarter was 18.73%, up 1.81 pct year on year, which is expected to result from the optimization of the company's product structure. The decline on the performance side was greater than on the revenue side, mainly due to a significant increase in the cost side. The sales/management/R&D expense ratio for the first three quarters of 2024 was 2.64%/5.65%/3.60%, +0.69/+1.06/+0.68pct compared to the same period, leading to an increase of 2.43 pct to 11.89%. We expect that this is mainly due to the company's increased investment in R&D in recent years, promoting innovation and implementation of the company's related products, and increasing personnel costs due to the establishment of sales channels.

Increase the screw production capacity layout and wait for the product to be released. During the reporting period, the company changed the technical improvement project for wind turbines with an annual output of 22 million pieces of 4 megawatts (MW) or more to an R&D and industrialization project for core components of wire control execution systems, with a total investment of 0.16 billion yuan. The project construction period is about 30 months. Construction is expected to begin in September 2024 and put into operation by the end of February 2027. We believe that the company's current project change is due to the fact that the wind power market is developing less than expected and market demand is slowing down. Second, the company's wind power roller production capacity can basically meet the current order level, and there is little need to continue to increase investment in the short term. Second, the main products of the new project are screw products, which are used in automobiles, robots and other fields. At the same time, the humanoid robot industry is in the 0-1 explosion stage, and the industrial space is also huge. The company is actively laying out production capacity at this time, which is expected to take the lead in entering the blue ocean market and opening up room for growth .

Profit forecast: Optimistic about the company's market position and layout in fields such as screws. It is expected that with the explosion of humanoid robots and new energy vehicles, the company is expected to fully enjoy the dividends of industry development and open up the growth ceiling. We expect the company to achieve net profit of 1.40/ 1.83/ 0.244 billion yuan in 2024-2026, corresponding PE 49/ 38/ 28 times. The 2025 profit was estimated at 45 times PE, and the target price was 22.4 yuan. It was covered for the first time, and a “buy” rating was given.

Risk warning: Downstream demand falls short of expectations, profit forecasts and valuation judgments fall short of expectations.