From January to September 2008, the company achieved operating income of 26.459 billion yuan, an increase of 15.85% over the previous year; operating profit of 696.826 million yuan, a decrease of 7.54% over the previous year; net profit attributable to owners of the parent company was 57.82 million yuan, an increase of 4.08% over the previous year; and diluted EPS was 0.23 yuan. The company's revenue in the third quarter was 8.858 billion yuan, up 35.61% year on year. Net profit attributable to parent company owners was 16.92 million yuan, down 10.25% year on year, and diluted EPS was 0.07 yuan.
Revenue increased 15.85% year over year. The company is the largest commodity trade center in China and one of the 500 largest material distribution enterprises in China. It specializes in the operation and import and export of metal materials, energy, building materials, automobiles and other products, with metal trade accounting for more than 70% of revenue; its business methods include distribution, agency, chain management, international trade, etc., and its international trade revenue accounts for about 5%. In the first three quarters, the company's revenue increased 15.86% year-on-year, mainly due to a sharp increase in metal trade volume (especially in the third quarter).
The decline in the prices of metals and energy tests the company's profitability. The company's industry attributes determine its low gross margin level, but its changes have had a significant impact on performance. In the first three quarters, the company's gross profit margin was 1.38%, down 0.09 percentage points from the previous year. Mainly due to business needs, the company had to hold a certain amount of product inventory. Metals and energy prices continued to fall, causing gross margin in the third quarter to fall 0.39 percentage points year on year to 1.28%. The decline in gross margin, along with the calculation of preparations for falling inventory prices and the increase in financial expenses, led to a 10.25% year-on-year decline in net profit attributable to owners of parent companies in the third quarter, while the year-on-year increase in the first half of the year was 11.50%. With the sharp drop in metal and oil prices since September, the company's profitability in the fourth quarter will be severely tested.
The company has the largest non-ferrous metal materials spot market in the country and a fuel oil sales center in Shanghai. The subsidiary Shanghai Commodity Trade Center Nonferrous Metals Exchange Market specializes in spot trading of non-ferrous metal materials. The market's trading volume ranks first among all commodity trading markets in Shanghai. The subsidiary Shanghai Fuel Pudong Co., Ltd. has a mid-year fuel oil capacity of 1 million tons, accounting for 65% of the supply in the Shanghai industrial fuel oil market, and has become a fuel oil sales center in Shanghai and surrounding regions.
The Bailian oil depot project helps improve the company's performance. The company plans to invest 520 million yuan to build the Bailian oil depot project in early 2008. The project's storage tank design capacity is about 200,000 cubic meters, of which it is planned to establish an emergency special reserve of 30,000 tons of refined oil products, mainly diesel, with an annual turnover of 3-4 million cubic meters. After completion, it can be used as an emergency special reserve base for refined oil products in Shanghai. The construction period of the project is 1 year, and the operating period is set at 20 years. It will be completed and put into use in early 2009. The project is expected to generate net profit of more than 50 million yuan per year, with an investment profit margin of more than 10%, which will increase the company's profitability to a large extent.
Profit forecasts. We expect the company's net profit attributable to owners of the parent company to fall 10.87% year-on-year in 2008, and the EPS in 2008 and 2009 were 0.26 yuan and 0.27 yuan respectively, and the corresponding dynamic PE was 19 times and 18 times respectively, maintaining the company's “neutral” investment rating.