The company published three quarterly reports. In the first three quarters of 2023, the company achieved revenue of 2,768 million yuan (-9.48%), net profit of 167 million yuan (-20.11%), net profit of 155 million yuan (-19.06%), net profit of 155 million yuan (-19.06%); in the third quarter, the company achieved revenue of 953 million yuan (-9.45%), net profit of 42 million yuan (-42.49%), net profit of 40 million yuan (-40.89%).

The company's performance declined due to the decline in gross margin and the increase in the cost ratio. The company's gross margin for the first three quarters was 19.96%, down 0.51pct year on year. The gross margin for the third quarter was 18.56%, down 2.41 pct year on year. We believe that the decline in the company's gross margin is related to the weakening of downstream demand and increased competition in the industry. Judging from the cost ratio, the company's sales, management, R&D, and financial expenses in the first three quarters were 5.04%, 3.92%, 4.40%, and 0.37% respectively. Compared with the same period, they changed by +0.73pct, +0.38pct, -0.01pct, and +0.31pct respectively. The total cost rate for the four categories was 13.73%, an increase of 1.41pct over the previous year. We believe that the increase in the expense ratio is mainly due to the reduction in the scale effect of the decline in sales revenue.

Weakening downstream demand has put pressure on the company's revenue. According to data from the National Bureau of Statistics, the country's cement production from January to September 2023 was 1,495 million tons, a year-on-year decrease of 0.7%; in September, the monthly cement production was 189 million tons, a year-on-year decrease of 7.2%. Against the backdrop of weakening downstream demand and declining sales of cement and concrete, the company's main product admixtures were also affected accordingly. The company's revenue for the first three quarters and the third quarter fell by nearly 10% year on year.

Investment suggestion: The company has a total production capacity of 1,389 million tons of various admixtures, and can provide more than 100 kinds of concrete admixtures and related products. The company's health research and testing group can provide services throughout the life cycle of engineering research, construction, operation and maintenance. The company's revenue for 2023-2025 is estimated to be 35.96, 41.90 and 4.972 billion yuan respectively, and net profit of 1.95, 2.50 and 314 million yuan respectively, corresponding to PE 18.20, 14.20 and 11.29 times, respectively. Maintain a “buy” rating.

Risk warning: downstream demand weakens, industry competition intensifies, raw material prices rise, etc.