Core views

Affected by the macroeconomic situation, the company's supply chain business revenue declined, but gross profit has rebounded somewhat. As the company actively develops new quality productivity in multiple industries, the industrial chain business maintains strong revenue and gross margin growth, and its contribution to the company's profit continues to increase. In particular, the booming shipbuilding (orders and deliveries continue to grow), diesel generator sets (opening up the vast Southeast Asian and European markets) and consumer (branding trend) businesses continue to expand, driving the company's profit margin to continue to increase.

occurrences

In the first three quarters of 2024, the company achieved operating income of 86.941 billion yuan, an increase of -9.49% year on year; realized net profit attributable to shareholders of 1.001 billion yuan, an increase of 11.84% year on year; after deducting non-net profit of 0.893 billion yuan, an increase of 26.96% year on year.

Among them, the third quarter achieved operating income of 31012.5813 million yuan, an increase of -1.73% year on year; net profit attributable to shareholders of 0.431 billion yuan, an increase of 12.46% year on year; after deducting non-net profit of 0.4 billion yuan, an increase of 46.19% year on year.

Brief review

In the first half of 2024, the company adhered to the 12-character policy of “firm confidence, integrity and innovation, and promotion of stability through progress”, actively served the national strategy, firmly implemented the five determinants of “dual cycle development, scientific and technological innovation development, brand development, digital development, and green development”, accelerated the cultivation and development of new quality productivity, and achieved steady growth in profits and imports and exports.

Business growth in the industrial chain led to quarterly revenue recovery, and profit margins continued to rise steadily:

The company's revenue declined by 23.41%, 3.94%, and 1.73% respectively in the first three quarters. The decline was mainly due to demand for commodities in the supply chain business, but high-margin businesses such as exports of textiles, shipbuilding, and mechanical and electrical products in the company's industrial chain business continued to grow, leading to a gradual narrowing of the decline in revenue.

Meanwhile, in the first three quarters, the company's gross margin was 6.57% /+1.47pct, net profit margin was 2.95% /+0.45pct, and net profit margin was 1.15% /+0.22pct; 24Q3 company's gross margin was 6.73% /+1.10pct, -0.02pct month-on-month, net margin was 3.25% /+0.22pct, +0.51 pct month-on-month, and the net profit margin was 1.39% /+0.18pct, +0.44pct month-on-month, continuously verifying the diversified and high-quality development of the industrial chain business.

The increase in the company's expense ratio was limited, and the efficiency of profit conversion was improved: the sales, management, R&D, and financial expense ratios of 24Q1-3 were 1.41% /+0.25pct, 0.81% /+0.13pct, 0.46% /+0.13pct, and 0.16% /+0.11pct, respectively. Looking at a single quarter, 24Q3 sales, management, R&D, and financial expenses rates were 1.41% /-0.04pct, 0.82% /+0.10pct, 0.47% /+0.10pct, and 0.23% /+0.13pct, respectively.

Transfer the Shanghai plot to strengthen the layout of Shanghai. On October 24, the company announced that Jiangsu Sumeda Group Co., Ltd., a wholly-owned subsidiary of the company, will use 0.17 billion yuan of its own capital to transfer 52% of Shanghai Jirun Real Estate Co., Ltd., a wholly-owned subsidiary of China Pufa Machinery Industry Co., Ltd., to acquire the comprehensive R&D assets of the Shanghai Jirun Real Estate building located at 778 Jinji Road, Pudong New Area, Shanghai, under the name of Jirun Real Estate, to provide office space for the relevant subsidiaries and branches of the company based in Shanghai and consolidate the foundation for business development in the Shanghai region.

Investment advice: The company is expected to achieve net profit of 1.159 billion yuan, 1.292 billion yuan, and 1.421 billion yuan in 2024-2026, with year-on-year growth rates of +12.60%, +11.39%, and +10.06%, respectively. The current stock price corresponds to PE of 10X, 9X, and 8X, respectively, maintaining an “incremental” rating.

Risk analysis

1. The global economy is complex and changing, and trade protection has intensified: trade protection and trade frictions have intensified, and the company's export products are easily restricted, affecting business performance.

2. Geopolitical risk: The company accounts for a large share of overseas business. It has factories, offices and engineering project departments in some overseas regions. Geopolitical tension causes the company to face safety risks and business risks. 3. Risk of exchange rate fluctuations: Fluctuations in the RMB exchange rate will affect the sales of the company's export or imported products and have an uncertain impact on the company's overseas business. 4. Competition exacerbates the risk of business development falling short of expectations: in a tough economic environment, market competition intensifies, model innovation accelerates, and the company faces the risk that the breadth and depth of business development falls short of expectations.