Subbott Q3 achieved revenue of 0.912 billion yuan (yoy -0.35%, qoq -7.33%) and net profit of 25.3188 million yuan (yoy -43.07%, qoq -21.37%). 1-9M24 achieved revenue of 2.48 billion yuan (yoy -3.90%), net profit of 78.607 million yuan (yoy -44.43%), deducting non-net profit of 66.4187 million yuan (yoy -48.74%). The net profit due to Q3 was lower than our expectations (0.044 billion yuan), or mainly due to the continued decline in prices of major products, compounded by pressure on raw material prices. However, considering that real estate construction has been declining for 3 consecutive years, there may be limited room for future market decline, and the company is a leading company in the admixture sector, so we maintain a “buy” rating.

Sales of 1-9M24 high-performance water reducing agents bucked the trend, and prices declined under 1-9M24's sales volume of high-performance water reducing agents/high-efficiency water reducing agents/functional materials was 0.744/0.013/0.217 million tons, +2.2%/+19.4% year-on-year, with an average sales price of -13.7%/+30.2%/+8.0% YoY; sales of the main products, high-performance water reducing agents, were steady, and prices continued to be under pressure. 1-9M24 gross profit margin 32.9%, YoY -2.15pct; 24Q3 gross profit margin 29.5%, YoY -3.6/-5.3pct. On the cost side, according to Wind, the average price of 1-9M24 ethylene oxide was +4.9% year-on-year, and the cost price squeezed in both directions, leading to a decline in gross margin under pressure.

From January to September '24, the cumulative total area of new real estate construction was -22.2%. Since this year, the deceleration rate has narrowed month by month. We believe that demand in the construction section is gradually bottoming out, and demand for water-reducing agents for building materials on the construction side is expected to gradually stabilize.

Expense performance during the 1-9M24 period was rigid, and the increase in rates led to a decline in profitability of 26.2%, +1pct year over year. Among them, sales/management/R&D/finance expenses were 11.2%/8.6%/4.7%/1.7%, respectively, +0.7/+0.2/-0.1/+0.3 pct; of these, the Q3 single quarter rate was 22.93%, -0.26/ -1.54 pct month-on-month. The absolute value of the overall cost performance was rigid, and the slight decline in revenue led to a slight increase in rates. 1-9M24's net profit margin was 3.18%, -2.3 pct year over year; 24Q3 was 2.8%, -2.1/-0.5 pct year on month.

1-9M24 Net operating cash flow is improving, and there are delays in payments

The company's 1-9M24 net operating cash flow was 0.215 billion yuan, +32.4% year over year. The net operating cash flow for the Q3 quarter was 0.143 billion yuan, or -56.2% year on year. The 1-9M24 payment/cash ratio was 98.8%/80.8%, respectively, -6.2/-9.9pct. The cumulative operating cash flow of 1-9M24 improved year over year, or mainly due to a decrease in the company's cash payments for goods and services, and there was a slight delay in payment.

Profit forecasting and valuation

Considering that demand for short-term construction is still under pressure, but it is expected to stabilize in the medium to long term, we adjusted the 2024-2026 net profit forecast to 1.15/1.49/0.194 billion yuan, and the estimated EPS was 0.27/0.34/0.45 yuan (previous value 0.34/0.38/0.44 yuan), respectively. Comparatively, the company's 25-year Wind unanimously expected an average PE value of 17.5 times. Considering that the company is the leader in the admixture sector, there is limited room for market decline after real estate construction starts, superimposing the advancement of related key water conservancy projects, or marginally boosting demand for admixtures, giving the company 25 times PE in 25 years, corresponding to a target price of 8.61 yuan (previous value of 8.22 yuan).

Risk warning: Production capacity investment falls short of expectations; product price competition continues to be intense; raw material prices are rising.