Event: Shenzhen Gas Bulletin third quarter report in 2023. In the first three quarters of 2023, the company achieved revenue of 23.193 billion yuan, year-on-year + 2.88%; net profit of 1.105 billion yuan, + 28.23%; and basic earnings per share of 0.38 yuan per share, + 26.67% of the same period last year. In the third quarter of 2023, the company achieved revenue of 7.971 billion yuan, + 2.90% year-on-year, and net profit of 456 million yuan, + 41.00% year-on-year. In this regard, our comments are as follows:

The profit growth of smart gas plate and gas resources plate contributed to profit increment, and the sales gross profit margin increased in the first three quarters. According to the company's report for the third quarter of 2023, the company's net profit increased by 41.00% in the third quarter compared with the same period last year, affected by the profit growth of the smart gas sector and the gas resources sector. In terms of profitability, the company's gross sales margin in the first three quarters of 2023 was 15.49%, year-on-year + 0.72 pct, and net sales margin was 5.34%, year-on-year + 0.42pct. In the third quarter of 2023, the company had a gross sales margin of 16.66%, a year-on-year + 2.87pct. It is speculated that the company's profitability has been repaired due to the downward price at the cost end of gas.

The net operating cash flow in the first three quarters was 1.632 billion yuan, compared with the same period last year. In the first three quarters of 2023, the company's operating net cash flow was 1.632 billion yuan, compared with-36 million yuan in the same period last year, compared with the same period last year. According to the company's quarterly report for the third quarter of 2023, the company's operating net cash flow was affected by changes in the accounts receivable and inventory of its subsidiary company Swick, which took up less working capital than in the same period last year. By the end of the third quarter of 2023, the company had a balance of 6.321 billion yuan in cash and equivalents at the end of the period, an increase of 3.059 billion yuan over the beginning of the year.

By the end of the third quarter, the balance of accounts receivable was 3.295 billion yuan, and inventory was lower than at the beginning of the year. By the end of the third quarter of 2023, the balance of accounts receivable of the company was 3.295 billion yuan, compared with 2.345 billion yuan at the beginning of the year, an increase of 40.51%.

In terms of inventory, the company's inventory balance was 1.597 billion yuan at the end of the third quarter, compared with 2.265 billion yuan at the beginning of the year, down 29.49 percent.

Investment advice: maintain the "overweight" rating. We adjust the company's profit forecast and forecast that the company will achieve revenue of 32.649 billion / 35.532 billion / 38.721 billion yuan respectively from 2023 to 2025, which is + 8.6%, 8.8% and 9.0% respectively compared with the same period last year, and the net profit of 1.5 billion / 1.759 billion / 2.044 billion yuan, respectively. + 22.7%, 17.3%, 16.2%, respectively. The PE valuation corresponding to the closing price on October 27, 2023 is 13.2x/11.3x/9.7x.

Risk hint: the risk of natural gas sales is lower than expected, the risk of new business expansion is not as expected, and the risk of rising gas prices exceeds expectations.