Overview of events

Zhenxing Co., Ltd. released its third quarterly report for 2023. In the first three quarters of 2023, the company achieved revenue of 5.172 billion yuan, year-on-year-0.47%; net profit of 275 million yuan, + 32.83%; and non-return net profit of 271 million yuan, + 56.73% of the same period last year. From a quarterly point of view, Q3 achieved operating income of 1.828 billion yuan in a single quarter,-14.84% of the same period last year, and net profit of 117 million yuan, + 31.12% of the same period last year. In terms of cash flow, the net cash flow generated by the company's operating activities in the first three quarters of 2023 was 395 million yuan, which was + 25570.07% compared with the same period last year, mainly due to the substantial increase in cash received by the company in selling goods during the reporting period.

Analysis and judgment:

The revenue side is under pressure and profitability continues to be strong.

Q3 achieved operating income of 1.828 billion yuan in a single quarter,-14.84% year-on-year. We expect that the overall domestic consumer demand in the third quarter is relatively flat, and the weak recovery in downstream demand has slowed the company's performance to a certain extent, as the domestic economic data are up month on month. We expect the company's revenue to improve in the fourth quarter under peak season demand. In terms of profitability, the gross profit margin and net profit margin of the company in the first three quarters of 2023 were 12.17% and 5.31% respectively, + 2.52pct and + 1.32pct respectively compared with the same period last year. Among them, Q3 single-quarter gross profit margin and net profit margin are 13.67% and 6.53% respectively, which are + 3.15pct and + 1.90pct respectively compared with the same period last year. Gross profit margin reached a new high in the same period of nearly five years. We expect that the profitability is mainly due to the continuous increase in the proportion of overseas business with high gross margin and the decline in raw material prices (Cambodia III project is expected to be completed in 2023, overseas business is expected to continue to contribute to the company's performance). In terms of period expense rate, the company's period expense rate in the first three quarters of 2023 was 5.79%, year-on-year + 0.58pct, in which sales expense rate, management expense rate, R & D expense rate and financial expense rate were 0.49%, 3.33%, 0.74% and 1.23% respectively, which were + 0.14pct, + 0.66pct,-0.08pct and-0.14pct respectively. The Q3 company's period expense rate is 5.91%, year-on-year + 0.79pct, in which the sales expense rate, management expense rate, R & D expense rate and financial expense rate are 0.50%, 3.28%, 0.96% and 1.17%, respectively, and + 0.19pct, + 0.66pct, + 0.15pct and-0.21pct, respectively.

Investment suggestion

We continue to be optimistic about Zhenxing Co., Ltd., as a leading company in the metal packaging industry, the product line mainly includes beverage cans and food cans, including three-piece cans, two-piece cans and aluminum bottles. In the short term, the recovery of consumption has been carried out steadily, and the downward trend of rebound in downstream demand and superimposed costs remains unchanged, which is conducive to the further improvement of the company's performance. In the medium and long term, the company's three-piece can business is deeply tied to the symbiotic growth of high-quality customers, while the two-piece can business will also benefit from the overall profit improvement brought about by the improvement of the industry canning rate and pattern improvement, as well as the company's own capacity expansion. As the demand of the industry is still under pressure in the short term, but the trend of the company's profitability continues to improve, we adjusted our previous profit forecast and adjusted the company's revenue from 2023 to 2025 to 7315,000,000 yuan, 9275 million yuan and 11.548 billion yuan respectively. The price of EPS 0.26Universe 0.34Compact 0.41 yuan is adjusted to 0.34Compact 0.43Compact 0.54 yuan, which corresponds to the closing price of 5.22yuan / share on October 27th, 2023, and the PE is 15-12-10 times, respectively, keeping the "buy" rating unchanged.

Risk hint

1) the risk of large fluctuations in raw material prices; 2) macroeconomic fluctuations lead to lower-than-expected downstream demand; 3) industry competition aggravates the risk.