The company announced third-quarter results: revenue of 48.45 billion yuan, -10.2/ -10.5% year over year; net profit to mother of 99.577 million yuan, +55.5/+34.2% year over month, respectively; net profit excluding net profit of -10.65 million yuan (23Q3:0.145 billion yuan). In the first three quarters, the company achieved revenue of 147.21 billion yuan, -3.0% year on year; net profit attributable to mother was 0.418 billion yuan, -19.9% year over year; net profit after deduction of non-return to mother was 62.41 million yuan in the first three quarters, -88.0% year on year. The company's net profit for the third quarter was higher than our forecast of 49.811 million yuan. Non-recurring profit and loss in 24Q3 increased sharply year-on-year, mainly due to the company's commodity futures liquidation and floating profit changes, which changed from -80.515 million yuan in 23Q3 to 0.11 billion yuan year-on-year. The company was affected by commodity prices in the third quarter, and the turnover rate of the industrial chain slowed, which had a negative impact on the main business. However, non-recurring profit and loss increased sharply year-on-year in '24, and the 25-year performance is expected to strengthen under the steady growth policy and maintain a “gain” rating.

The commodity boom is low, and demand for black products is weak

According to data from the National Bureau of Statistics, the area of new housing construction in 3Q24 declined year-on-year/month-on-month, falling 19% and 13% respectively, curbing demand for bulk steel, etc. According to Nanhua Futures data, in 3Q24, the Nanhua Metals/Energy/Chemical Indices were -1.7/-1.9/ -9.4%, respectively, and -7.7/-7.8/ -2.8%, respectively. Commodity prices continued to decline, hampering the performance of supply chain companies. The South China Black Index was -7.0/ -10.1% year-on-year, respectively. The decline was even more obvious, and the company's main business, the black supply chain (accounting for 77% of revenue in 23 years), was clearly dragged down.

Steady growth policies and real estate recovery are expected to accelerate account turnover and boost 25-year performance

Affected by the commodity market, industrial turnover has slowed down, and the company's total asset turnover ratio has declined significantly since '23 (23 interim reports/23 annual reports/24 interim reports: 7.88/6.71/2.40 times). However, recently, the central bank announced a package of monetary policies, and the 9.26 Politburo meeting emphasized “effectively enhancing the sense of responsibility and urgency to do a good job in the economy,” and the first priority was “to stop the decline and stabilize the real estate market.” In particular, the 10.12 Ministry of Finance press conference mentioned that it will introduce the strongest debt reduction measures in recent years, which are expected to mitigate the risk of local stock debt, clear up arrears to enterprises, and thus restore the normal flow of upstream and downstream accounts in the supply chain. The company is expected to take the lead in benefiting.

Profit forecasting and valuation

We lowered our 24/25/26 net profit forecast of 23/21/ 4% to 0.55/0.76/1.04 billion yuan (previous value: 0.71/0.96/1.08 billion yuan), compared to -22.7/+37.6/ +37.3%, corresponding EPS was 0.78/1.07/1.47 yuan. Considering the company's clear year-on-year growth trend in 25 years, we gave a 25-year 6.2x PE, and the corresponding target price was 6.6 yuan (comparable to Company Wind) Expected to be 6.2x, the company enjoys a valuation premium with superior risk control capabilities and profit structure, but the arrears lawsuits of upstream and downstream companies such as Xiangshui Longtuo have not been resolved, and there are certain risks. Therefore, the company was given an average valuation for the industry (previously given a 32% premium rate) and maintained an “increase” rating.

Risk warning: upstream and downstream risks in the supply chain; risk of sharp fluctuations in commodity prices; risk of diversified management.