Revenue fell compared with the same period last year, and its net profit increased significantly. In the first three quarters of 2023, the company achieved revenue of 1.194 billion yuan (- 10.73%), net profit of 283 million yuan (+ 86.01%), and non-return net profit of 249 million yuan (+ 96.34%). Among them, the revenue in the third quarter was 488 million yuan (+ 18.43%), the net profit was 112 million yuan, and the non-return net profit was 102 million yuan, which increased significantly compared with the same period last year.

The significant increase in the company's return net profit is due to a significant increase in corporate rebates and an increase in write-off losses on credit impairment in the first three quarters of 2023, as well as the early repayment of loans to financial institutions, a decrease in financial expenses and an increase in revenue recognized by the company in accordance with the criteria of "government subsidies". In the first three quarters of 2023, the company's accounts receivable were 2.571 billion yuan, down 33.76 percent from the same period last year, and the credit impairment loss was 152 million yuan, a sharp increase from-6 million yuan in the same period in 2022.

The issuance of special refinancing bonds by the Inner Mongolia government has been completed, and the company is expected to benefit significantly. In October 2023, Inner Mongolia issued three issues of special refinancing bonds, raising 66.32 billion yuan, and all the funds raised by the special refinancing bonds repaid the arrears of enterprises that the government was responsible for repaying. Mengcao Ecology, as a local listed company in Inner Mongolia, is expected to significantly benefit from the promotion of local government debt, the company's accounts receivable are expected to further decline in the future, and the company's cash flow and financial situation will continue to improve.

The high-quality development of Inner Mongolia emphasizes the overall management of grass and sand system in mountains, rivers, forests and lakes, and the sustained and steady development of the company's grassland ecological environment restoration business. In October 2023, the State Council issued the opinions on promoting the High-quality Development of Inner Mongolia and striving to write a New Chapter of Chinese-style Modernization, proposing to co-ordinate the management of grass and sand systems in mountains, rivers, forests and lakes, and to build a solid ecological security barrier in the north. we will scientifically promote the comprehensive control of desertification and strengthen the protection and restoration of grassland forest wetlands. Since its establishment, the company has ploughed the field of grassland ecological environment restoration and management for a long time, has rich experience in project construction and operation, and relies on "seed industry science and technology" to create technical advantages, grassland ecological environment restoration business is expected to continue to develop steadily.

Risk hint: the risk of policy change; the project construction and operation are not as expected; the market competition is intensified.

Investment suggestion: maintain the profit forecast. It is estimated that the return net profit for 2023-2025 will be RMB 403, 579, and 772 million, respectively, with a year-on-year growth rate of 117.6%, 43.3%, 33.3%, and 0.48, respectively, for the PE of 2023-2025, and the current PE is 16.5, 11.5, 8.6x respectively. It is estimated that the profits brought by the company's ecological restoration business and others in 2024 will be 449 million yuan, 11-13 times PE, corresponding equity market value 49-5.8 billion yuan, and seed industry and forage business profit 130 million yuan, 28-30 times PE, corresponding equity market value 36-3.9 billion yuan. To sum up, the reasonable market capitalization of the company is 86-9.7 billion yuan, corresponding to the reasonable value of 5.35-6.07 yuan per share, which is a premium of 29% 46% over the current share price.

Maintain a "buy" rating.