Key points of investment

The revenue side was in line with expectations. The Q3 profit side was affected by non-recurrent factors. In the first three quarters of 2024, the company achieved revenue of 1.354 billion yuan, +16.84% year over year, achieved net profit of 0.135 billion yuan, +5.89% year over year, and realized net profit without return to mother of 0.113 billion yuan, or +4.53% year over year.

The company's rapid revenue growth is mainly due to the growth of the company's domestic hard alloy products such as cutting tool alloys, rock drilling tool alloys, and hard alloy cutting tools. At the same time, revenue from ancillary products and rock drilling equipment products also increased slightly.

Looking at the single quarter, the company achieved revenue of 0.47 billion yuan in 2024Q3, +23.50% year on year, realized net profit to mother 0.037 billion yuan, -12.31% year on year, and realized net profit after deducting non-return to mother 0.031 billion yuan, or -15.14% year on year. 2024Q3 The company's revenue remained high in the single quarter. The deviation in profit growth was mainly due to non-recurring factors such as exchange losses and credit impairment. We expect Q4 to return to normal.

There was a slight decline in gross margin. Changes in exchange profit and loss led to an increase in the financial expense ratio. The company's gross margin for the first three quarters of 2024 was 31.72%, -1.15 pct year on year, 30.85% in the single quarter of 2024Q3, -3.00 pct year on year, and -0.68 pct month on month. The gross margin declined in the single quarter.

The company's net sales margin for the first three quarters of 2024 was 11.50%, -1.43pct year on year, and the net sales margin for 2024Q3 in a single quarter was 9.10%, -3.34pct year-on-year, and -3.75pct month-on-month.

In terms of the period expense ratio, the company's expense ratio for the first three quarters of 2024 was 18.62%, +0.50pct year on year. Among them, the sales/management/finance/R&D expenses ratio was 5.58%/8.23%/0.78%/4.04%, +0.32pct/-0.14pct/+0.67pct/-0.35pct. In the first three quarters of 2024, there was a slight increase in the financial expense ratio. Our judgment is that interest expenses increased and exchange losses increased.

Continue to explore overseas markets, increase R&D investment and strengthen technological innovation:

(1) In 2024, the company actively developed overseas markets, but mid-term delivery was slightly affected. Affected by the slowdown in shipments, 2024H1's overseas business revenue was 0.373 billion yuan, -0.81% year-on-year. The company is optimistic about the prospects of overseas markets, and is continuously strengthening the management of overseas subsidiaries. While grasping existing customer resources, the company further explores the value of old customers, participates in internationally influential exhibitions, uses new media platforms for brand promotion and marketing measures, and promotes the development of new products and new markets.

(2) Follow innovation-driven development strategies and continue to strengthen technological innovation. In the first three quarters of 2024, the company spent 0.055 billion yuan on R&D, up 7.54% year-on-year. In the first half of 2024, the company was granted 4 new invention patents and 11 utility model patents. R&D investment continues to increase, and the company continues to strengthen technological innovation capabilities to inject vitality into medium- to long-term competitiveness and growth.

Profit forecast and investment rating: Considering that the recovery process of the domestic manufacturing industry is slightly lower than market expectations, our net profit forecast for 2024-2026 is 1.87 (original value 2.05) /2.53 (original value 2.64) /3.26 (original value 3.36) billion yuan, respectively. The current stock price corresponds to dynamic PE 17/12/10 times, respectively. Considering the company's active layout of overseas markets and long-term growth, we still maintain an “increase” rating.

Risk warning: The recovery of the manufacturing industry falls short of expectations, the risk of fluctuating raw material prices, and the risk of the operation and management of overseas subsidiaries.