The company achieved revenue of 37.167 billion yuan in the first three quarters, an increase of 5.82% over the same period last year, mainly due to the increase in steel sales driven by the warming of downstream demand. It is expected that the demand side of long wood in the fourth quarter can still maintain positive growth. As a leading long wood enterprise in Guangxi, the company has room to repair its low profit level and maintain its "overweight" rating.

Q3 revenue increased slightly, while home net profit decreased slightly compared with the same period last year. In the first three quarters, the company achieved revenue of 37.167 billion yuan, an increase of 5.82% over the same period last year, and a net profit of 1.236 billion yuan, down 16.72% from the same period last year. Of this total, Q3 achieved a revenue of 14.163 billion yuan, an increase of 15.68% over the same period last year, and a net profit of 463 million, an increase of 111.87% over the same period last year, down 20.46% from a month earlier.

The price of raw materials is high, and the gross profit of enterprises has declined slightly. During the reporting period, the company achieved a gross profit of 2.763 billion, down 13.11% from the same period last year. In the third quarter, the average unit price of plate and small profiles of the company's main products decreased by 4.46% and 7.64% respectively compared with the same period last year, but their sales increased by 9.33% and 14.66% respectively, and the company's Q3 revenue increased by 15.68%. The decline in the company's gross profit was mainly due to the compression of corporate profits by the high prices of raw materials such as iron ore. The average 2020Q3 price of iron ore, calculated according to the Platts index, increased by 14.96% year-on-year and 24.23% month-on-month.

The sales expenses increased significantly, and the operating cash flow decreased significantly. The sales / management / financial expense rates for the first three quarters of the company were 0.17%, 0.96%, 0.17%, respectively, compared with the same period last year. The rate of sales / management / financial expenses in the first three quarters of the company was 0.17%, 0.96% and 0.17%, respectively, compared with the same period last year. Among them, the sales cost was 63.96 million yuan, an increase of 48.01% over the same period last year, mainly due to the increase in freight charges for steel sales. The net operating cash flow was 1.698 billion, a decrease of 60.78% over the same period last year, mainly due to the increase in payment by the company.

Pessimistic expectations on the demand side have fully reflected that there is still room for repair in long wood profits. It is expected that the fourth quarter will be a concentrated landing period for capacity replacement, the supply side as a whole is loose, the demand-side real estate financing is tightened and the landing of infrastructure funds is not smooth, and it is expected that the problem of high inventory in the iron and steel industry will be difficult to resolve significantly during the year. It is unlikely that threaded profits will be substantially repaired, but it is expected that there is still room for repair in long wood profits driven by growing demand.

Risk factors: the decline in downstream real estate investment and new construction exceeded expectations; the supply side exceeded expectations.

Investment advice: it is expected that the replacement of production capacity in the fourth quarter will make the supply side as a whole loose, the demand side is not optimistic for a long time, but is expected to maintain positive growth during the year, there is room for profit repair. Considering that the price of raw materials is currently high and it is difficult to continue to rise, we have raised the company's EPS forecast for 2020-22 from 0.66 to 0.74 to 0.87, 0.93 and 0.98. The company is the leader of steel enterprises in Guangxi Province, the current PB valuation is still low, according to the 2020 PB valuation of 1.1 times, maintain the target price of 5.33 yuan, maintain the "overweight" rating.