Event: the company released its three-quarter report in 2023, with operating income of 1.27 billion yuan in the first three quarters, + 5.6% compared with the same period last year, and net profit of 120 million yuan in the first three quarters,-18.7% in the same period last year, including 440 million yuan in operating income in the third quarter, + 8.8% in the same period last year, and 35.999 million yuan in net profit in the third quarter. + 5.3%, basically in line with expectations.

Excluding the steady growth at the revenue end of the company, the gross profit margin continued to improve compared with the previous three quarters: (1) the company's main business income in the first three quarters was 1.24 billion yuan, which was + 6.0% compared with the same period last year. Among them, the clean air / energy efficient sector income was + 3.0% and 11.6% respectively compared with the same period last year, and the clean air sector income after deducting the distant income was + 9.1%. The company increases the application layout of mobile dust-free space and fixed dust-free space, and increases the contribution to the company's business income, such as vehicle oil filter, air filter products, construction glass wool products, household dust-free air conditioners, etc. (2) the company's comprehensive gross profit margin in the first three quarters was 24.8%, year-on-year-2.6pct, mainly due to changes in product structure, the cost of bulk raw materials higher than the same period last year, the increase in fixed amortization costs due to the incomplete release of new production capacity, and the overall weak demand in the first quarter, but the comprehensive gross profit margin in the third quarter alone was 25.9%, year-on-year + 1.7pct, which was also improved compared with the second quarter.

The increase in period expense and impairment loss affects the company's net profit level: (1) in the third quarter, the company's sales / management / R & D / financial expense rate is 3.9%, respectively, 6.4%, 5.8%, 0.9%, and + 0.6/-0.8/-1.2/+1.4pct, respectively. (2) the loss of the company's credit impairment in the third quarter was-4.252 million yuan,-4.836 million yuan compared with the same period last year, mainly due to the increase in the balance of accounts receivable due to the long payback period of some distant equipment projects, and the company made corresponding provision for impairment; (3) the company realized a net profit of 36 million yuan in the third quarter, + 5.3% compared with the same period last year, and the net interest rate was 8.1%.

The increase in receivables affected the company's operating cash flow, and the asset-liability ratio increased slightly: (1) the net cash flow of the company's operating activities in the first three quarters was-68.6% compared with the same period last year, mainly due to the increase in receivables due to the long account period of distant equipment. At the end of the third quarter, the balance of accounts receivable was 700 million yuan, + 11.2% compared with the same period last year. (2) the cash paid by the company for the purchase and construction of fixed assets, intangible assets and other long-term assets in the first three quarters was-19.1% compared with the same period last year, mainly due to the commissioning and commissioning of new projects in the previous period; (3) by the end of the third quarter, the company's asset-liability ratio was 30.5%, year-on-year + 1.7pct.

The project of selling 70% stake in Suzhou Youyuan is progressing steadily, and in the medium to long term, it is expected to speed up the cross-industry extension and global layout of the company's filtering business: in July, the company announced the sale of 70% stake in Suzhou Yuyuan, a wholly-owned subsidiary to Manhumer. The deal is progressing steadily, although it will have an impact on the company's revenue scale in the short term. But selling the equipment business with lower gross margins and longer payback cycles helps to improve the company's profit margins and cash levels, and the partnership with Manhumer helps to expand the clean air business across industries and globally, opening up room for medium-and long-term growth.

Profit forecast and investment rating: the company is the leader in the subdivision of filter materials in China, operating at the bottom upward in the medium term, building thermal insulation, dust-free air conditioners and other new products have gradually entered the volume period. Cooperation with Manhumer Group is expected to accelerate the extension of core materials to automotive and other fields as well as the process of global layout, and the company is expected to start a new round of rapid growth. Taking into account the impact of the distant sale, we adjusted the company's 2023-2025 homing net profit to $1.9 million (the previous value was $2.3 million) and maintained the "overweight" rating.

Risk hint: the risk that the expansion of new products and new areas is not as expected, the sale of Suzhou long-distance transaction is not as expected, and the demand for clean rooms is not as expected.