Event: The company released its 2024 three-quarter report. In the first three quarters, the company achieved operating income of 2.93 billion yuan, or -28.8% year-on-year; net profit attributable to mother and net profit of 0.38 and 0.24 billion yuan after deduction, respectively, of -38.0% and -52.4% compared to the same period last year. The third quarter achieved revenue of 0.95 billion yuan, -23.4% year over month, and -3.0% month on month; net profit attributable to mother and net profit excluding net profit of 0.15 and 0.06 billion yuan, respectively, +20.3% and -51.2% year over year, respectively, +100.2% and -7.7% month-on-month, respectively.

Q3 In the cement business, price stability decreased from quarter to quarter. In terms of sales, the company achieved cement clinker sales of 11.116 million tons in the first three quarters, -15.8%; of these, cement clinker sales in the third quarter were 3.807 million tons, -16.6% year over year, and +3.2% month over month.

As the weather improved, 24Q3's cement product sales rebounded slightly from quarter to quarter. In terms of price, the company's cement sales price was -18.3% year-on-year in the first three quarters, slightly narrower than the 20.9% year-on-year decline in the first half of the year. Given that the company's 24Q3 revenue still declined slightly month-on-month and sales increased slightly, we expect the company's cement clinker price to decline somewhat month-on-quarter. As regional prices rise in late September, we expect the company's cement unit price to gradually stabilize.

Investment returns boosted Q3 earnings levels. The 24Q3 company achieved an overall gross profit margin of 21.1%, -2.4 pcts year on year and 2.5 pcts month-on-month. The profit level is still under pressure; the cost ratio for the third quarter of a single quarter was 11.1%, +2.4 pcts year over year, and -0.9 pcts month-on-month. Affected by the recovery and rise in stock indexes at the end of the quarter, the return on fair value changes in securities held by the company increased, achieving a net profit of 0.093 billion yuan from fair value changes in a single quarter, +0.143 billion yuan year on year, and +0.107 billion yuan month-on-month. The 24Q3 company achieved a net sales margin of 16.7%, +6.2 pcts year on year and +8.3 pcts month on month; achieved net profit margin of 6.3% after deduction, -4.1 pcts year on year, and -0.8 pcts month-on-month.

Both supply and demand sides of the industry have shown signs of improvement. At the end of September, the fifth round of clinker price increases in the Yangtze River Delta exceeded expectations. According to Digital Cement Network, as of October 18, the average price of P.O 42.5 cement was 409 yuan/ton, up 23 yuan/ton from the week before the National Day. The average price of P.O 42.5 cement in East China, South China and Guangzhou was 424, 368, and 405 yuan/ton, respectively, up 71, 8, and 25 yuan/ton from the week before the holiday season. Since September, the government's fiscal policy and real estate policy have continued to gain strength, which is beneficial to promoting future demand-side stability; on the supply side, in the process of shifting the industry from pursuing share to a profit-seeking business idea, increasing efforts to reduce production is an inevitable choice for the industry. Furthermore, in September, the Ministry of Ecology and Environment issued a consultation draft on market construction such as cement carbon taxes. It is expected that with the subsequent gradual tightening of carbon quotas, combined with total volume restrictions, the cement industry's backward production capacity will enter the stage of substantial clearance.

Investment advice: Stabilize cash dividends to highlight long-term investment value. In principle, the company's annual cash dividend for 24-26 was not less than 70% of the net profit attributable to listed shareholders for the year, and the cash dividend per share was in principle not less than 0.45 yuan. Based on fixed dividends, the total corresponding dividend was about 0.54 billion yuan. The dividend rate corresponding to the current stock price (October 25) is 5.8%, which highlights the long-term investment value. The company has a reasonable production capacity layout and strong resource endowments. It occupies a strong position through a high market share under the relatively closed market in the region, and is expected to maintain profit resilience. Since the decline in sales volume and unit price was slightly higher than expected, we adjusted the corresponding assumptions. After adjustment, the company's expected net profit to mother for 24-26 was 0.49, 0.53, and 0.56 billion yuan, respectively (the previous forecast was 0.65, 0.71, and 0.78 billion yuan for 24-26, respectively); the PE corresponding to the current stock price is 19.0, 17.6, 16.5 times, and the corresponding PB is 0.8, 0.8, and 0.8 times, maintaining the “increase in holdings” rating.

Risk warning: demand falls short of expectations; supply constraints fall short of expectations; large cost fluctuations; large fluctuations in cement prices, etc.