Key points:

Q3 net profit to mother increased 31.04% year over year, and revenue in a single quarter reached a record high

On October 30, Farah Electronics announced its 2024 three-quarter report. Q3 achieved revenue of 1.322 billion yuan, a year-on-year increase of 46.92%, a record high in the single quarter's revenue since listing. Q3 achieved net profit of 0.293 billion yuan, a year-on-year increase of 31.04%, and Q3 achieved net profit without deduction of 0.291 billion yuan, a year-on-year increase of 32.85%. The Q3 gross margin was 34.16%, down 4.35 pcts year on year, down 0.76 pct from month to month .

In the first three quarters of 2024, the company achieved revenue of 3.439 billion yuan, a year-on-year increase of 19.77%, and achieved net profit of 0.775 billion yuan, an increase of 8.43% year-on-year, and realized net profit without return to mother of 0.752 billion yuan, an increase of 3.25%, gross margin of 34.11%, a year-on-year decrease of 4.58 pct.

The rapid growth of the photovoltaic and NEV market is driving Farah Electronics' revenue to a new high

In the first half of 2024, the company's NEV-related business accounted for about 52% of revenue, photovoltaic-related business accounted for about 24% of revenue, wind power-related business accounted for about 4% of revenue, industrial control-related business accounted for about 15% of revenue, household appliances related business accounted for about 3% of revenue, and lighting-related business accounted for about 2% of revenue. According to the Passenger Federation data, in 2024, China's NEV sales growth rate far surpassed that of other major regions of the world, and in July-October, China's NEV sales growth rate far exceeded that of the first half of the year. According to Bloomberg data, the number of new PV installations will reach 593.8 GW in 2024, an increase of 33.74% over the previous year. Rapid growth in PV installations and sales of new energy vehicles has driven a historic breakthrough in Farah Electronics' revenue.

Set up overseas subsidiaries to further implement the international strategic layout

The company announced on August 23 that in order to further implement the company's international strategic layout and enhance the company's overall competitiveness, it plans to invest no more than 0.1 billion yuan in Hungary to establish a wholly-owned subsidiary, Faratronic Hungary Kft. (English name: Faratronic Hungary Kft.). The establishment of a wholly-owned subsidiary in Hungary is an important layout for the company based on its overseas development strategy. It is conducive to promoting exchanges and cooperation between the company and overseas markets, enhancing the company's comprehensive strength, and enhancing the company's core competitiveness.

Investment advice

Driven by multiple motors and the rapid increase in 800V penetration rate, the value of bicycle film capacitors is expected to increase dramatically. Farah Electronics is in the first tier of the world, and automation superimposes integrated construction cost advantages. Farah Electronics has excellent management capabilities, is far ahead of its peers in profitability, and remains stable. At the same time, it has excellent cash flow performance. We expect the company's net profit for 2024-2026 to be 1.163, 1.46, and 1.854 billion yuan respectively, with growth rates of 13.6%, 25.5%, and 27.0% respectively. As of the close of November 15, the current price of PE corresponds to 24.18 times, 19.26 times, and 15.17 times, respectively, maintaining Farah Electronics' “buy” rating.

Risk warning

The risk of a sharp rise in raw material prices, the risk of increased competition, the risk of a sharp reduction in downstream prices, and the risk of multiple motors and 800V penetration rates falling short of expectations.