Key points of investment:
Incident: The company disclosed the report for the third quarter of 2024. The company achieved revenue of 11.451 billion yuan in the first three quarters, up 52.88% year on year; net profit due to mother was 0.561 billion yuan, down 14.69% year on year; after deducting non-net profit of 0.465 billion yuan, down 19% year on year; looking at the third quarter alone, the company's operating income was 3.905 billion yuan, up 29.25% year on year, and net profit to mother was 0.145 billion yuan, down 11.23% year on year, minus non-return Net profit from parent was 0.052 billion yuan, down 65.28% year on year, and performance was lower than expected.
Revenue from the resource sector continues to grow rapidly. In the first three quarters of 2024, the company's revenue from January to September increased by 52.88% over the same period of the previous year, mainly due to the increase in sales revenue of Jiangxi Xinke and Jingyuan High Energy during the reporting period.
The sharp drop in volume and price in the engineering sector and the drop in copper prices in the resource sector are the main reasons for the decline in the company's profits. On the one hand, the company's engineering sector's available orders declined in the first three quarters, and project revenue declined. Furthermore, inspection projects increased in the third quarter, and depreciation of accrued contract assets increased, leading to a decline in profits in the engineering sector. On the other hand, financial expenses increased accordingly due to increased financing and exchange losses; at the same time, the resource sector's profit declined due to the procurement of some raw materials produced in the third quarter at high prices in the second quarter. Overall, the company's gross margin for the first three quarters was 13.95, a year-on-year decrease of 4.92 pcts.
Cash flow from operating activities continues to improve. The company's operating cash flow in the first three quarters was 0.219 billion, showing a significant improvement compared to -1.197 billion yuan in the first three quarters of last year and 0.11 billion in the interim report this year. The company previously issued the “2024 Semi-Annual Profit Distribution Plan Notice”. Each share will receive a cash dividend of 0.33 yuan (tax included), with a total proposed cash dividend of 0.503 billion yuan. Based on the company's net profit of 0.416 billion yuan in the first half of the year, the company's cash dividend ratio for the 2024 semi-year will be about 120.91% (30% dividend rate in 2023).
Investment analysis opinion: In view of the sharp decline in the volume and price of the company's engineering sector and the impact of copper price fluctuations on the company's current profit, we lowered the company's 2024-26 profit forecast to 0.886/1.053/1.088 billion yuan (previously the profit forecast was 1.03/1.196/1.306 billion yuan), and the corresponding PE was 9/7/7, respectively, to maintain the “gain” rating.
Risk warning: Resource-based business capacity falls short of expectations; market competition intensifies; risk of fluctuations in raw materials and product prices.
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