1-9M24, the company's revenue/net profit to mother was +52.88%/-14.69% to 11.451/0.561 billion yuan; the 3Q24 company achieved revenue of 3.905 billion yuan, +29.25% year over year; net profit to mother was 0.145 billion yuan, -11.23% year over year, net profit without return to mother was -90.28 million yuan to 52.38 million yuan, mainly due to: 1) The revenue and gross margin of the engineering sector declined; 2) the resource sector Profits were affected by the consumption of high-priced copper inventory in May-March; 3) The disposal of Yuhetian's equity led to the conversion of recurring profit and loss from the equity method to non-recurring profit and loss. High-priced copper inventories have been consumed in Q3, and the impact on Q4 earnings may have been drastically reduced. However, considering that increased competition brought about a decline in gross margin in the engineering sector and a decline in gross margin at the resource receiving end, the company's net profit to mother in 2024-2026 was lowered to 0.693/0.747/0.991 billion yuan, a “purchase”.
The engineering sector had a significant impact on profit, and the impact continued in Q4 or 1H24. The company's engineering sector revenue was -16.8% year-on-year to 0.987 billion yuan, and gross margin -13.49 percentage points year-on-year to 16.61%. In 3Q24, the company's engineering sector still showed a year-on-year decline in revenue and gross margin, mainly due to: 1) the company voluntarily abandoning some projects to guarantee repayment, leading to a year-on-year decrease in the number of projects being implemented; 2) the gross margin of the project dropped sharply year-on-year due to increased market competition. Considering that the company's strict screening of engineering projects will continue, we believe that the revenue and profit volume of the 4Q24 engineering sector may maintain a downward trend.
The impact of high-priced inventories in the resource-based sector is expected to weaken in Q4. The “exchange” policy or easing pressure on the receiving end of high-price copper inventories in May-June affected the profits of Pengfu and Jiangxi Xinke, which mainly processed copper-containing raw materials. However, considering that the consumption of high-priced inventory was almost completed in 3Q24, this factor may have greatly weakened the profit of 4Q24's resourced sector. Increased competition has led to a year-on-year increase in prices at the receiving end, which has also had a certain impact on the company's gross margin in the resource-based sector. With the implementation of the country's “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, upstream waste volume may increase, and the reduction in receiving pressure is expected to have a positive impact on the increase in profitability of the resource sector.
Target price of 6.82 yuan, maintaining “buy” rating
Lowering the company's gross profit margin, we expect the company's net profit for 2024-2026 to be 0.693/0.747/0.991 billion yuan (previous value: 0.807/0.948/1.208 billion yuan), corresponding to EPS of 0.45/0.49/0.65 yuan. Considering that the profits of the company's resource-oriented subsidiaries, which mainly focus on back-end processing, are expected to increase the company's long-term profitability and give the company a 25-year 14x target PE (Wind consistently expects PE average value 12x). The target price is 6.82 yuan (previous value: 7.09 yuan), maintaining the “buy” rating.
Risk warning: The expansion of hazardous solid waste production capacity falls short of expectations, the soil remediation market volume falls short of expectations, and the increase in capacity utilization of waste incineration projects falls short of expectations.
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