Conclusions and recommendations:

Thanks to the volume of products such as headsets and AR/VR, the company's 3Q24 revenue increased by nearly 40% month-on-month, while the share of low-margin products continued to decline, and the company's net profit recorded a sharp increase of 138% year over year. The trend towards positive performance was further clarified.

Looking forward to the future, along with the development of the AI industry, the consumer electronics sector is undergoing major changes. The application of large AI models in the fields of AR/VR, smart homes, PCs, and mobile phones requires continuous progress in human-computer interaction methods. The company has been immersed in the fields of optics and acoustics for many years, and is expected to grow at the same time as the AI industry. We expect the company to achieve net profit of 3.49 billion yuan, 4.46 billion yuan, and 5.14 billion yuan in 2024-26. YoY will increase by 221%, 28%, and 16%, EPS will be 1.02 yuan, 1.3 yuan, and 1.5 yuan, corresponding PE will be 26 times, 20 times, and 15 times, respectively. Considering the rapid growth in demand in the AI-related sound and optoelectronics sector, there is room for improvement in the company's valuation, giving “buy” investment suggestions.

3Q24 revenue increased month-on-month, and profit continued to improve: in the first three quarters of 2024, the company achieved revenue of 69.65 billion yuan, YOY decreased by 5.8%; achieved net profit of 2.35 billion yuan, YOY increased by 162.9%, and EPS was 0.69 yuan.

Among them, in the third quarter, the company achieved revenue of 29.26 billion yuan, YOY increased 1.7%, achieved net profit of 1.12 billion yuan, and YOY increased by 138.2%. The company's performance was better than expected. Thanks to the improved profit level of the intelligent acoustics machine+smart hardware business, as well as the increase in the revenue share of high-margin precision components. In terms of gross margin, the company's comprehensive gross profit margin for the first three quarters was 11.4%, an increase of 3 percentage points over the same period last year, reflecting a decline in the share of low-margin smart hardware.

Under the AI wave, the fields of acoustics and optics have great potential: with the development of the AI industry, AIPC, mobile phones, smart homes, and intelligent monitoring devices will enter a period of rapid growth, and human-computer interaction methods will continue to change, and multi-modal control interaction will become a trend. Therefore, demand for technologies such as high signal-to-noise ratio design and spatial coding in the field of acoustics will grow rapidly. Continuous upgrading will drive the scale of the industry to increase, and the company's main business as an industry leader will clearly benefit.

Profit forecast and investment suggestions: We expect the company to achieve net profit of 3.49 billion yuan, 4.46 billion yuan, and 5.14 billion yuan in 2024-26, YoY growth of 221%, 28%, and 16% growth, and EPS of 1.02 yuan, 1.3 yuan, and 1.5 yuan, corresponding PE is 26 times, 20 times, and 15 times, respectively. Considering the rapid growth in demand in the AI-related sound and optoelectronics sector, the company's valuation has room for improvement, giving “buy” investment suggestions.

Risk warning: AR/VR demand fell short of expectations, and the impact of the pandemic exceeded expectations