Incidents: The company disclosed its three-quarter report for 2023. The first three quarters achieved operating income of 2,382 billion yuan, an increase of 134.62% over the previous year; net profit of 157 million yuan, an increase of 130.52% over the previous year; and net profit of 151 million yuan, an increase of 129.11% over the previous year. Comments on this are as follows:

The results of cost reduction and efficiency have been remarkable, and the performance has been impressive. Good project execution and settlement in the first three quarters led to a year-on-year increase in revenue of 134.62%. Combined with the strengthening of cost and expense control, the company's performance was impressive, with a year-on-year increase of 130.52%. Among them, Q3 achieved operating income of 1,036 billion yuan, an increase of 145.29%; net profit of 69.451 million yuan, an increase of 109.42% over the previous year; and net profit of 67.73448 million yuan, an increase of 90.65% over the previous year. 1) Gross margin decreased by 4.24pct year on year. The company's gross margin/net profit margin for the first three quarters was 15.36/ 6.58%, down 4.24/0.12pct from the previous year, respectively. We judge that it was mainly affected by changes in product structure. Among them, Q3 gross margin/net margin was 15.15/ 6.71% respectively, down 8.48/1.15pct from the previous year, respectively, and remained stable month-on-month. 2) The cost rate has been reduced significantly, and the results in cost reduction and efficiency have been remarkable.

The company's net operating cash flow for the first three quarters was 230 million yuan, a year-on-year decrease of 28.95%. The fee rate for the period was 6.10%, down 4.75pct from the previous year. Among them, the sales/management (including R&D) /financial expenses ratio was 0.63/5.70/ -0.23%, respectively, down 0.54/3.97/0.24pct from the previous year.

Introduce employee stock ownership plans to bind core key personnel. On September 12, the company announced the first phase of the employee stock ownership plan (draft). The participants in this plan are the company's core key personnel, and the company's directors (including independent directors), supervisors, and senior management are not involved. The total number of people participating in the employee's shareholding plan does not exceed 100, and the price of the transferee company's share repurchase price is 4.76 yuan/share. The source of the shares in this plan is that the company's special repurchase account has repurchased the company's A shares of common shares. The total number of shares does not exceed 3.58 million shares, accounting for 0.80% of the company's current total share capital. The company-level performance assessment requirements for this employee stock ownership plan are: based on deduction of non-net profit in 2022, the growth rate of deducted non-net profit from 2023-2024 is 20/ 44%, respectively, corresponding to an average annual compound growth rate of 20%.

Investment advice: Outstanding performance, employee stock ownership plans to boost confidence, and maintain an increase in holdings rating. The company's net profit from 2023 to 2025 is estimated to be 2.35 million, 2.96, and 372 million yuan respectively, up 71%, 26%, and 26% year-on-year respectively, with corresponding valuations of 17, 13, and 11 times, respectively. The company has excellent modular design and manufacturing capabilities, and has the advantages of the whole EPFC industry chain and integrated service. Most of our customer resources are internationally renowned chemical companies. We have abundant on-hand orders, obvious location advantages, and future growth can be expected.

Risk warning: Project progress falls short of expectations; modular penetration rate does not increase as much as expected; risk of declining investment by overseas chemical companies in China; risk of high customer concentration; increased market competition risk.