Introduction to this report:

The company's Q3 performance declined due to Jinyuan's discontinuation of production and rising cost rates. At the same time, the postponement of the IPO fundraising project will affect revenue release.

Key points of investment:

Revenue was under pressure, and performance fell short of expectations. The company achieved revenue of 2,498 million yuan/ +1.71% in the first three quarters, net profit of 250 million yuan/ -4.56%, and net profit of 210 million yuan/ -12.24% after deducting non-return to the mother. In the third quarter alone, revenue was 751 million yuan/-22.71% /-12.68% month-on-month, net profit of 70 million yuan/-32.23% yo/ -12.25% month-on-month; net profit after deducting net profit of 62 million yuan/-6.34% y/-8.48% month-on-month.

Considering that the company's production capacity release progress was lower than expected and that the national epidemic was repeated, the 2022-24 EPS was lowered to 0.84 (-0.17), 1.10 (-0.24), and 1.37 (-0.26) respectively. Based on the company's future business layout, the target price was maintained at 19.77 yuan, increasing holdings.

Revenue declined due to Jinyuan's discontinuation of production, and profit margins were stable. The company's 22Q3 revenue fell 22.71% year on year, mainly due to the suspension of production in the pig iron sector due to fluctuations in steel prices, and there was no revenue. The 22Q3 company's gross profit margin was 20.14% /year on year +2.25pct/+3.31pct month-on-month, mainly because the impact of low pig iron gross margin on the company's overall gross margin decreased after production was discontinued. The net interest rate was 9.32% /year-on-year -1.3 pct/+0.05 pct month-on-month, mainly due to the increase in three fees and the increase in interest on convertible bonds.

Downstream demand is stable, and the postponement of some IPO fund-raising projects affects revenue release. Looking at downstream, domestic sales of household air conditioners were 6.95 million units/ +4.5%, exports of 3.44 million units/ -5.1% in September 2022. Domestic sales of refrigerators in August 2022 were the same as the same period last year. Automobile production and demand returned to normal levels, and overall demand was relatively stable. In terms of production capacity, on October 25, the company announced that due to the repeated impact of domestic and foreign economic conditions and the epidemic, market supply and demand are constantly changing. It was decided that the proposed extension of the project implementation cycle will be affected if the investment purpose and scale of the raised capital are not changed.

Catalysts: global economic recovery, major customers achieve breakthroughs

Risk warning: Macroeconomic downturn, raw materials rise