Description of the event

In 2024Q1-Q3, the company achieved revenue/net profit to mother/ net profit of 2.539/0.172/0.144 billion yuan, a decrease of 14%/48%/49%; of these, 2024Q3 achieved revenue/net profit to mother/ deducted non-net profit of 0.964/0.036/0.031 billion yuan, a decrease of 14%/72%/72%.

Incident comments

Total 2024Q3 revenue also fell 14%: mainly due to a significant year-on-year decline in revenue from the engraver/water-cooling business, and the year-on-year increase in revenue related to automotive electronics/e-smokes/e-bikes. 1) Intelligent control component products: Revenue from water cooling and cooling is expected to decline year on year, and business revenue related to video conferencing systems will increase year on year. 2) Innovative consumer electronics products: The engraving machine business is expected to drop more year-on-year due to poor downstream demand and fierce price competition; against the backdrop of a low base, Ebike's business revenue is expected to increase year on year; e-cigarette overseas business development is progressing smoothly, and revenue is expected to increase year on year. 3) Automotive electronics:

Revenue continued to grow rapidly, construction of the Mexican base progressed steadily, the market share of intelligent control module products such as electronic anti-glare mirrors, sunroof controls, and seat controls continued to increase, and the allocation rate of new products increased rapidly. 4) Healthy environment products: Due to increased market competition due to the development of emerging business formats such as cross-border e-commerce, revenue is expected to continue to decline year on year.

Exchange losses affected the increase in the financial expense ratio. The decline in the scale of revenue led to an increase in the remaining expense ratio, and the net interest rate declined year-on-year.

2024Q3's gross margin was 2.1 pcts to 26.6% year over year, and 2024Q3's sales/management/R&D/finance expense ratio increased by 0.6/1.6/1.3/2.2 pcts, respectively. Among them, the year-on-year increase in sales/management expenses was mainly due to a year-on-year decline in revenue and stable company expenses (both sales and management expenses increased year-on-year in Q3), the year-on-year increase in financial expenses ratio was mainly due to exchange losses, and the net interest rate of 2024Q3 was reduced by 7.9/6.9 pcts.

There is potential for growth in the medium to long term: I am optimistic about the steady restoration of existing businesses, the gradual expansion of new projects, and progress in ongoing research projects. The company's business focuses on various race segments. Multiple tracks have shown good potential for development. As the company continues to deepen cooperation with major customers and the steady progress of new product development, it is expected to continue to contribute revenue. The company's current share of revenue from the engraving machine business has dropped to a low level; e-cigarette products have successfully achieved the supply of “precision plastic parts - core heating modules - complete machines”; early quality review issues have been resolved, and the trend of improving orders is clear; the global layout of the automotive electronics business is accelerating, and the construction of an intelligent manufacturing base in Mexico is progressing steadily (expected to be completed and put into operation in 25 years); in addition, the company's new business areas such as smart pet machines, medical fields, and outdoor products also have good development prospects. The company integrates global R&D resources. 2024Q1-Q3 R&D investment accounts for about 10% of revenue, and the development of other new products and new businesses continues to advance. The company is expected to achieve net profit of 0.24/0.3/0.4 billion yuan in 2024-2026, corresponding to PE 41/33/25X.

Risk warning

1. Risk of exchange rate fluctuations; 2. Risk of falling product gross margin.