The company achieved net profit of 0.118 billion yuan in the third quarter, down 15.51% year on year. The company released its quarterly report for the third quarter of '24. It achieved revenue/net profit to mother of 6.773/0.171 billion yuan in the first three quarters, -9.55%/-41.41% year-on-year, and achieved net profit deducted from non-mother 0.14 billion yuan in the first three quarters, or -46.93% year-on-year. Among them, Q3 achieved revenue/net profit to mother of 2.473/0.118 billion yuan in a single quarter, -23.31%/-15.51% year-on-year, after deducting non-attributable net profit of 0.112 billion yuan, or -11.36% year-on-year.

The decline in Q3 profit narrowed, cement prices increased, and the digital logistics business volume is expected to grow. Q3 The company's profit decline has narrowed. It is expected to be mainly due to the recovery in cement prices during the peak season. By the end of September '24, the company's production capacity in Ningxia/Inner Mongolia was 7.6/4.65 million tons, and the average price of Q3 cement tons in Q3 Ningxia/Inner Mongolia was 426/415 yuan respectively, +9.3% year over year, +7.2%/+3.5% month over month, and cement production was 4.94/12.49 million tons, respectively, -9.4%/-14.7% year on year. We estimate that Q3's cement sales volume was around 4 million tons, net profit per ton Around 30 yuan. On the supply side, Ningxia and Inner Mongolia plan to start on October 20 and November 1 of this year, respectively, and implement the heating season for 150 days at the end of Q1 next year. The number of false peak days in Inner Mongolia will increase by 30 days compared to last year. Recently, the Ministry of Finance proposed that it will strongly support local government debt conversion. We believe that the growth rate of infrastructure investment is expected to pick up, which is beneficial to improvements on the demand side of cement. Along with supply-side contraction, prices are still expected to rise, and Q4 performance may continue to improve. In terms of digital logistics business, the company's holding subsidiary Horse Racing IoT's “I'm looking for a car” operation project has carried out diversified value-added services. The compound revenue growth rate of the digital logistics business has reached 233% in the past three years, and there is room for improvement in gross margin. The company's smart logistics business has given full play to the synergy with China Building Materials Group. We believe it is expected to continue to expand to other member companies within the China Building Materials Group and external energy and building materials industry customers in the future, and the business volume is expected to grow rapidly.

Q3 Increased gross margin and optimized capital structure

The company's overall gross profit margin for the first three quarters was 6.56%, -1.97pct year on year, of which the overall gross profit margin for Q3 was 9.40%, +0.41/+2.63 pct yoy, respectively. The expense ratio for the first three quarters was 3.59%, +0.03pct year on year. Among them, sales/management/R&D/finance expense ratios were -0.07/-0.08/+0.10/+0.08pct year on year, respectively. The increase in financial expenses was mainly due to an increase in interest expenses accrued accordingly on loans, which ultimately achieved a net interest rate of 2.56%, -1.53 pct year on year. Q3 achieved a net profit margin of 5.07% in a single quarter, +0.55/+2.65pct yo/ month-on-month. The balance ratio at the end of 24Q3 was 32.24%, -0.47pct year on year, and the capital structure was optimized. The company's net operating cash flow for the first three quarters was 0.306 billion yuan, -0.123 billion yuan year on year, revenue ratio +2.13 pct year on year reached 68.94%, and cash on payment ratio of +3.65 pct year on year reached 60.92%.

Optimistic about the company's medium- to long-term growth and maintain a “buy” rating

The actual controller of the company is China Building Materials Group, which has a strong state-owned background. In the future, China Building Materials Group will continue to steadily promote related business integration to resolve competition issues in the industry, and is optimistic about the company's long-term development. Considering that the company's Q3 net interest rate increased year-on-year, and that Q4 cement may still have price increases, the company's net profit forecast for 24-26 was raised to 0.21/0.33/0.45 billion yuan (previous value: 0.2/0.3/0.38 billion yuan), corresponding PE was 30/19/14 times, respectively, maintaining the “buy” rating.

Risk warning: Demand for cement falls short of expectations, price increases fall short of expectations during peak season, rising coal costs, etc.