The company released its three-quarter report for 2023. In the first three quarters of 2023, the company's revenue was 6.241 billion yuan, an increase of 4.77%; net profit of 82 million yuan, a decrease of 69.44%; and EPS of 0.07 yuan, a decrease of 69.60%. The large scale of impairment dragged down performance, and share repurchases demonstrated the company's confidence in development. Maintain the company's buying rating.

Key points to support ratings

Performance was under pressure, and the scale of net cash outflows increased. The revenue of the 2023Q3 company was 1,904 million yuan, an increase of 4.86%; net profit of the net income of the company was 221 million yuan, a decrease of 9.96%; net profit after deducting non-return net profit of 46 million yuan, a decrease of 2506.71%.

The company accrued impairment losses totaling 141 million yuan in the third quarter, and since September 1, 2023, Fengze shares will no longer be included in the consolidated statement, which has had a negative impact on the company's third quarter results. In 2023, the net cash flow from the company's operating activities was -848 million yuan, and the net outflow scale increased by 19.55% year on year; the net operating cash flow of the 2023Q3 company was -94 million yuan, and the net outflow scale increased 201.96% year on year.

The 2023Q3 profit margin increased month-on-month, or was mainly due to the company's channel transformation and cost reduction efforts to achieve results. In 20231-3Q, the company's gross margin was 21.19%, minus 0.42pct; net profit margin was 1.31%, down 3.19pct.

Among them, the company's comprehensive gross margin for the third quarter was 21.35%, up 2.37pct, a slight increase of 0.59pct from the second quarter; net profit margin was 1.12%, down 0.19pct, up 1.02pct from the second quarter. In the context of asphalt prices rising along with crude oil prices in the third quarter, the company's profitability increased month-on-month in the third quarter. Our judgment may be mainly due to changes in the company's sales channels and continuous optimization of the cost side. The total cost rate of the company for the period from 2023 to 3Q was 15.57%, an increase of 0.49pct. Among them, the sales/management/R&D/financial expenses ratio changed by 1.08/-0.12/-0.33/-0.12pct year-on-year, respectively. The company's expenses for the third quarter totaled 16.87%, a decrease of 0.61pct. Among them, the sales/management/development/development/finance expense ratio changed 1.99/-0.55/-1.60/-0.45pct year-on-year, respectively.

Sales channels continue to be adjusted, and share repurchases demonstrate confidence in development. The company continues to increase the development and cultivation of dealer customers, increase dealers' market coverage in prefecture-level cities, districts, and counties across the country, achieve a continuous decline in channels, and effectively increase the share of distribution revenue. After the channel construction is completed, the company will use sales channels to carry out product structure reforms and promote products with high added value, thereby increasing the company's profit level. In addition, the company has set up a special cost reduction team to reorganize various key links such as R&D, supply chain, and production, formulate specific cost reduction plans, and step up cost reduction assessments. The company issued an announcement on October 26 stating that it will buy back 0.5-100 million yuan of shares at a price of no more than 11 yuan/share, which also shows the company's confidence in future development.

valuations

The company's performance has declined significantly, and we have adjusted our profit forecast accordingly. In 2023-2025, the company's revenue is estimated to be 82.1 billion yuan, 103.9 billion yuan, and 12.92 billion yuan; net profit of net income is 2.7, 61, and 890 million yuan respectively; and EPS is 0.23, 0.52, and 0.75 yuan respectively. Maintain the company's buying rating.

The main risks faced by ratings

The rise in raw material prices exceeded expectations, the implementation of the policy fell short of expectations, and the progress of capacity expansion fell short of expectations.