1-3Q24 results are in line with our expectations

The company announced 1-3Q24 results: revenue for the first three quarters of 2024 was 27.856 billion yuan, up 2.2% year on year, and revenue for the third quarter was 8.903 billion yuan, down 1.5% year on year; 1-3Q24 net profit to mother was 3.059 billion yuan, up 24.0% year on year; 3Q net profit to mother was 0.897 billion yuan, up 14.1% year on year; the company's third quarter and 1-3Q24 results were in line with our expectations.

Profitability increased steadily: 1-3Q24's gross profit margin was 24.1%, YoY 2.1ppt; 3Q24 single quarter gross profit margin 24.0%, YoY 2.5ppt. In terms of expenses, the 3Q24 company's sales expense rate/management expense rate/R&D expense rate/financial expense ratio was 2.9%/3.2%/4.6%/1.0%, year-on-year, -0.3ppt//-0.7ppt/0.3ppt.

Development trends

The coal machine business remains ahead, and digital transformation continues to advance. In the first three quarters of 2024, the revenue of the coal machine sector increased 2.5% year on year to 14.527 billion yuan, achieving net profit of 3.136 billion yuan, up 25.9% year on year. The main reason was the optimization of the revenue structure of the coal machine sector, a decrease in material costs, and an increase in the share of revenue from products with high profit margins. The company actively promotes digital transformation, and the company's smart park has become the first lighthouse factory in the global coal machine industry. We believe that the company's digital transformation is expected to improve the level of intelligent coal mining, improve business operation efficiency, and maintain a leading position in the coal machine industry.

The profitability of the auto zero business has increased, and the leading position in the industry continues to be consolidated. The auto parts sector's revenue in the first three quarters of 2024 was 13.33 billion yuan, up 1.84% year on year; net profit was 0.179 billion yuan, up 20.32% year on year. Among them, ASIMCO's overall revenue was 3.864 billion yuan, up 21.42% year on year, mainly due to ASIMCO's rapid growth in revenue related to shock absorption and sealing systems and a steady rise in commercial vehicle parts related business revenue; SEG's revenue was 9.375 billion yuan, down 5.57% year on year, mainly due to a decrease in sales volume in the European market. The year-on-year increase in net profit in the auto parts business is mainly due to ASIMCO's overall revenue growth as a contribution to profit. We believe that with the gradual expansion of ASIMCO and SEG's business, the company's auto zero business will maintain steady growth.

Profit forecasting and valuation

We keep our 2024 and 2025 earnings forecasts unchanged; the current A share price corresponds to a price-earnings ratio of 6.4 times/6.1 times 2024/2025. The current H share price corresponds to the 2024/2025 price-earnings ratio of 4.3 times/4.0 times. A-shares remain outperforming the industry rating and target price of 16.00 yuan, corresponding to 7.7 times the price-earnings ratio of 2024 and 7.3 times the price-earnings ratio of 2025, with 19.6% upside compared to the current stock price. H shares remain outperforming the industry rating and the target price of HK$13.00, corresponding to 5.6 times the 2024 price-earnings ratio and 5.2 times the 2025 price-earnings ratio, with 24.76% upside compared to the current stock price.

risks

Coal companies' intelligent capital expenditure fell short of expectations; the price increase of raw materials exceeded expectations.