Incident: The company released its three-quarter report for 2024, achieving operating income of 7.289 billion yuan, a year-on-year increase of 0.28%, a year-on-year net profit of 0.666 billion yuan, a year-on-year decrease of 8.25%, and net profit deducted from non-return to mother of 0.622 billion yuan, a year-on-year decrease of 7.25%. Among them, the third quarter achieved operating income of 2.285 billion yuan, a year-on-year increase of 9.70%, achieved net profit of 0.208 billion yuan, a year-on-year increase of 5.37%, and realized net profit without deduction of 0.188 billion yuan, an increase of 3.41% over the previous year.

2024Q3 revenue and profit both turned positive, exceeding market expectations.

(1) Growth: 2024Q3's revenue increased 9.70% year on year, and net profit to mother increased 5.37% year on year. After 2 consecutive quarters of decline in both revenue and profit, it both turned positive for the first time, exceeding market expectations. We judge that the performance exceeded expectations because ① the company's dependence on the metallurgical industry decreased further, and the share of booming sectors such as coal chemicals and petrochemicals continued to increase; ② in the first three quarters of 2024, Qinfeng Gas's revenue increased 17% year-on-year, the highest in history during the same period. At the same time, by the end of September 2024, Qinfeng's gas liquid production increased 4.39% over the same period in 2023, the highest in the same period. Looking forward to the future, the company will continue to reduce its dependence on the metallurgical industry. Sales orders increased 26.77% year-on-year in the first half of 2024, while the gas business is growing steadily, and the company's overall performance is expected to gradually improve.

(2) Profitability: The company's gross profit margin and net interest rate for the first three quarters of 2024 were 22.86% and 10.36%, respectively, down 0.54 pct and 0.49 pct, respectively. We judge that the main reason was the increase in the share of gas operations with relatively low gross margin (2024H1, gas operating business revenue of 1.867 billion yuan, accounting for 37.31% of overall revenue, a significant increase from 30.66% in the same period last year). In terms of cost rates, sales/management/finance/R&D expenses for the first three quarters of 2024 were 2.42%/5.22%/-2.48%/3.84%, respectively, +0.08pct/-0.34pct/-0.08pct/+0.72pct, respectively. Through the adoption of the “Shaangu Marketing Management System”, the company's improved marketing management efficiency led to a decrease in management expenses. In addition, the company continues to increase investment in R&D, strengthen the layout of the distributed energy market, and consolidate and expand its leading position in compressed air energy storage equipment technology. It completed 17 first-line R&D projects in Q3. By the end of September 2024, it had completed 76 scientific research projects and 29 first-line R&D projects.

The progress of development in various fields is accelerating, and overseas markets are worth looking forward to.

(1) Compressed air energy storage: The company already has 10MW-400MW compressed air energy storage system unit solutions. The company's “axial+centrifugal” combined unit solution helps the compressed air energy storage market to become larger and larger, and has the characteristics of high system efficiency and strong economic advantages. In the first half of 2024, all eight sets of double-line four-stage large compressors provided by the company for the world's first 300MW compressed energy storage power plant were successfully tested and successfully connected to the grid. We believe that in the future, new energy storage, represented by compressed air, is expected to carry out a supporting electricity price policy for demonstration projects, the return on investors will increase significantly, and the willingness to invest in the project is expected to increase markedly. According to our estimates, the long-term market space for compressors required for air energy storage is about 100 billion dollars, and the company will fully benefit.

(2) Overseas markets: The company firmly adheres to the overseas strategic guideline of “going out, going out”. Partners such as large design institutes and engineering companies within the United Nations work together to expand overseas markets, expand market share, and continuously achieve positive results. In the first three quarters of 2024, the company successively signed a mixed refrigerant compressor project for an overseas company's 1 million square LNG liquefaction plant, a 35MW steam turbine generator project, a large-scale air separation project, a large-scale gas waste heat power generation project, and a user's 1216M3 blast furnace supporting unit project, etc., achieving breakthroughs in various fields of overseas business.

Maintaining a “buy” rating: We expect the company's net profit to be 1.167/1.367/1.522 billion in 2024-2026, corresponding PE of 12.5/10.7/9.6 times, respectively.

Risk warning: The progress of the industrialization of compressed air energy storage falls short of expectations, and the company's new fields and overseas development fall short of expectations.