Company announcement for the third quarter of 2023:1) Operating income: Achieved 407 billion yuan in the first three quarters, -0.9% year-on-year.

Among them, 23Q3 reached 128.8 billion yuan, -7% year-on-year; -13% month-on-month. 2) Gross profit: Achieved 4.87 billion yuan in the first three quarters, -8% year-on-year. Among them, 23Q3 achieved 1.76 billion yuan, +391% year on year, and gross profit margin 1.4%, up 1.1 percentage points year on year. 3) Net profit: The first three quarters achieved 1.87 billion yuan, -19% year-on-year, and the net profit margin of 0.5%, a year-on-year decrease of 0.1 percentage points; of these, 23Q3 achieved 290 million yuan, -45% year-on-year, and 0.2%, a year-on-year decrease of 0.2 percentage points. Net profit attributable to 23Q1-2 was $739 million and $838 million, respectively. 4) The company explained that the decline in net profit for the third quarter was mainly due to the complex and severe international external environment during the reporting period, domestic demand was still insufficient, some investment projects held by the company lost money, and some types of supply chain management business lost money due to market conditions. Note: We analyzed that the commodity market performance in the second quarter and third quarter was extreme. The company demonstrated the advantages of the risk control system in the second quarter, and was still under pressure in the third quarter.

The company continues to promote internationalization, industrialization and digitalization strategies. 1) The company's international layout has shown new results.

According to the company announcement, the company actively lays out key logistics nodes, enhances core control over the supply chain, and provides comprehensive services to upstream and downstream partners in the industrial chain. In the third quarter of 2023, the company established a platform company in Dubai in the UAE to expand the Middle East market, set up an ITG-STS joint venture in Singapore to carry out maritime forwarding business, set up Indonesian Derun Shipping Company to carry out domestic trade and shipping business in Indonesia, and set up new offices in Chile, Turkey and Thailand to expand the metal supply chain business. 2) In terms of industrialization, the company continues to develop new business categories, develop new rare earth materials business, promote natural gas business through strategic cooperation with Foshan Energy, and Indonesian subsidiaries obtain local coal management qualifications. 3) The company continues to promote digital construction and promote the launch of the “China Trade Cloud Chain · Egret Agricultural Care” for the agricultural products industry chain; the “China Trade Cloud Chain · Gold Trade Connect” supply chain fintech platform in cooperation with JD Technology officially launched procurement financing products, covering downstream customers in the pulp and paper industry chain in the first phase, and more diversified industrial chains and industrial customers in the future.

We continue to be optimistic about the gradual implementation of the company's transformation logic as a leader in the bulk supply chain and the value increase brought about by the company's strategic focus.

We previously proposed an investment research framework of “vertical flow+horizontal monetization”: 1) Revenue side, steady growth in vertical traffic: pattern dividends, concentration of leading shares, and expansion of new categories. 2) On the profit margin side, quality and efficiency are improving, and horizontal monetization capabilities continue to increase: high profit margin category expansion+logistics layout brings rich benefits from high turnover, cost reduction and efficiency, and high profit margin integrated project operations.

Investment suggestions: 1) Profit forecast: Based on the weaker-than-expected recovery in commodity demand, we adjusted our 2023-2025 profit forecast to the expected net profit of 23.7, 3, and 3.5 billion yuan (the original forecasts were 31.7, 3.8 billion yuan, and 4.5 billion yuan), corresponding to EPS of 1.08, 1.36, and 1.59 yuan, respectively, and the corresponding PE of 6, 5, and 4 times, respectively. 2) High dividend varieties. The company increased its dividend ratio to about 40% in '22. Assuming this distribution in '23, the corresponding dividend rate is expected to exceed 6%. As a target for undervaluation and high dividends, we believe that once the market's expectations for the economy warm up, the company will have strong allocation value that is both aggressive and defensible. 3) Controlling shareholders launch plans to increase their holdings. On October 26, the company's controlling shareholders plan to increase their holdings by 0.5-100 million yuan, reflecting confidence in the company's continued development. 4) Investment advice: Maintain the valuation method and give the company 8 times the predicted profit in 2024, with a target market value of 24 billion yuan. After considering the impact of additional issuance (proposed issuance to raise 3.7 billion yuan), it is expected that there is 28% space compared to the current market value, corresponding to the target price of 8.74 yuan, and maintain the “push push” rating.

Risk warning: Demand for commodities has dropped sharply, and the economy has declined.