3Q23 performance is lower than we expected.

The company announced 1-3Q23 results: revenue 2.955 billion yuan, year-on-year-25.0%; return to the mother net profit 356 million yuan, year-on-year-39.3%; deduction of non-return net profit 377 million yuan, year-on-year-25.4%. The downstream demand is weak and the performance is lower than we expected.

On a quarter-by-quarter basis, the company's 1Q/2Q/3Q23 realized revenue of 10.40%, 993%, 922 million yuan respectively, down 21.5% and 29.0%, respectively, compared with the same period last year; and realized a net profit of 160, 000, 000

Trend of development

Income growth is under pressure. The company's 1-3Q23 revenue fell 25.0% from the same period last year, of which 3Q23 revenue fell 29.0% from the same period last year. We believe that on the one hand, due to the weak consumer demand for cigarettes downstream, data from the National Bureau of Statistics show that China's cigarette production increased by 2.3% year-on-year from January to September this year, on the other hand, the company's sale of controlling shares in some subsidiaries led to income and statement adjustment.

The gross profit margin has improved. The company's 1-3Q23 gross profit margin increased 0.4ppt to 29.0% year-on-year, of which 3Q23 gross profit margin increased 6.5ppt to 28.3% year-on-year, which we believe is mainly due to the optimization of business organizations and the gradual climbing of new tobacco production capacity. In terms of period expenses, the company's expense rate during the 1-3Q23 period increased by 0.5ppt to 13.9% compared with the same period last year, of which the sales / management / R & D / financial expense rate was + 0.1/+0.1/+0.7/-0.3ppt to 1.6% compared with the same period last year. Affected by factors such as non-operating expenses, the company's 1-3Q23 homing net interest rate fell 2.8ppt to 12.0% compared with the same period last year.

Follow the progress of the company's new business layout. Under the pressure of the growth of traditional tobacco label business, the company actively promotes the development of new business, and the main packaging industry expands the color box business by virtue of its own manufacturing advantages and customer advantages. however, this year, due to the weak demand for downstream cigarettes, spirits and consumer electronics, the growth of color box business is under pressure. we expect that in the future, with the gradual recovery of downstream demand and the introduction of the company's new tobacco customers, the company's color box business is expected to return to rapid growth. In addition, the company's new tobacco business is progressing smoothly, and the business layout gradually extends to the whole industry chain, such as equipment, raw materials, products, brands, channels, etc., and has accumulated a large number of well-known tobacco customers at home and abroad. It is suggested to actively pay attention to the progress of the company's new tobacco business.

Profit forecast and valuation

Taking into account the lower-than-expected recovery of demand, the 24-year income of 23 prime was reduced by 10.4% to 4.649 billion yuan, and its net profit was reduced by 19.4% of net profit by 7.0% to 593 million yuan. The current share price corresponds to 1814 times Pexue E in 24 years. Maintain the outperform industry rating, based on the profit forecast adjustment, cut the target price by 13% to 7.00 yuan, corresponding to the 23max 24-year 22max 17 times Pmax E, 23% upside compared with the current stock price.

Risk

New business expansion falls short of expectations; industry competition intensifies; industry regulatory policy changes.