The company announced third quarter results: Q3 revenue of 6.77 billion yuan, +19.8% year over year; net profit to mother of 0.93 billion yuan, +8.2% year over year. In the first three quarters, the company achieved revenue of 20.36 billion yuan, +19.4% year over year; net profit to mother of 3.15 billion yuan, +14.1% year over year. The company's third-quarter results were in line with our expectations (0.93 billion yuan), and “two wings in one” continued to drive the company's revenue and profit to continue to grow against the trend. We believe that the company's consumer goods logic continues to be implemented, and that the main gypsum board business has maintained steady growth. Since September, the Ministry of Housing and Construction and other departments have held press conferences to release a package of incremental policies, which will help improve demand expectations for building materials and maintain “purchases.”

The year-on-year growth rate of Q3 revenue increased, and gross margin declined slightly year-on-month. 24Q3's revenue was +19.8% year-on-year, and the growth rate was 4.4pct higher than Q2. We expect the company's gypsum board sales to remain steady, and waterproof/coating will continue to grow rapidly. The company's gross profit margin for the first three quarters of 24 was 30.7%, -0.1 pct year over year, and -1.9/-2.7 pct in Q3. We expect the price decline mainly due to downstream demand pressure, but the price of the main raw materials for waterproof/coating/gypsum board was -6%/-4%/-3% year over year, and the cost side pressure was relatively small, and the company had obvious cost control advantages as the industry leader, and profitability is still expected to remain industry-leading.

The sales expense ratio increased slightly. The net operating cash flow in Q3 fell slightly year-on-year to 13.4% year-on-year, +0.6pct year-on-year. Among them, the sales/management/R&D/finance expense ratios were 5.0%/4.1%/4.1%/0.3%, respectively, +0.6/-0.04/+0.1/-0.1pct. The increase in sales expenses was mainly due to the relatively high sales expenses of the newly acquired paint business, mainly retail. The company's net operating cash flow for the first three quarters of 24 was 2.71 billion yuan, +38.0% year over year, and 0.67 billion yuan in Q3, -2.8% year over year. The slight year-on-year decline in the single quarter is expected to be mainly due to pressure on engineering side repayments in the waterproof business, but the paint and gypsum board business cash flow remained steady.

The policy side is actively working to improve demand expectations and follow up on subsequent demand recovery and price increases. According to the National Bureau of Statistics, retail sales of construction and decoration materials companies above the January-September quota were 118.6 billion yuan, -2.6% year-on-year, and the growth rate was -0.6 pct compared to January-August. In October, the Ministry of Housing and Construction held a press conference and proposed additional measures such as implementing 1 million urban village and urban dilapidated housing renovation, and increasing the credit scale of the “white list” project to 4 trillion yuan by the end of the year, combined with lower interest rates on existing mortgages and LPR, which will help improve demand expectations. Since the end of September, the company Taishan and Longpai Gypsum Board have successively issued price increase letters. If successfully implemented, it is expected to improve the company's Q4 profitability.

Profit forecasting and valuation

We maintain the company's 24-26 net profit forecast of 4.34/4.91/5.41 billion yuan, which is comparable to the company Wind's consistent average expectation corresponding to 14xPE in 25 years. We believe that the company's consumer goods logic continues to be implemented, the main gypsum board business maintains steady growth, and the “integrated two wings” and global layout continues to deepen. We have given 14xPE for 25 years, with a target price of 40.60 yuan, maintaining a “buy” rating.

Risk warning: the price increase of raw materials exceeded expectations; the integration of the waterproof business fell short of expectations; mergers and acquisitions fell short of expectations.