The company's revenue grew steadily in the first three quarters, and profits declined somewhat. The company released its report for the third quarter of 2024. The company achieved revenue of 0.86 billion yuan in the first three quarters of 2024, an increase of 10.1% over the previous year, and realized net profit of 0.04 billion yuan to mother, a year-on-year decrease of 68.1%. Looking at a single quarter, 2024Q3 achieved revenue of 0.27 billion yuan, a year-on-year decrease of 3.5%; realized net profit to mother of 8.48 million yuan, a year-on-year decrease of 83.1%.

Ash acceptance decreased & catalyst unit price decreased, Q3 profit declined year-on-year. The company's revenue growth in the first three quarters was mainly due to an increase in catalyst sales and revenue, and an increase in revenue from the residual film recycling business; the slight year-on-year decrease in Q3 revenue was mainly due to a decrease in the company's ash reception, but due to the settlement model, the revenue decline was relatively small. The year-on-year decline in Q3 profit is mainly due to 1) revenue reduction due to a decrease in ash intake; 2) current competition in the catalyst industry, where catalyst unit prices are lower and profit margins are compressed; 3) expenses such as depreciation expenses and labor costs have increased significantly year-on-year due to the operation of new projects; 4) new project development, reserve personnel costs, management and other expenses have increased, and project benefits have not yet been released.

The company's expense ratio has increased overall, and gross margin has declined due to cost increases, etc. The company achieved a gross margin of 24.8% (yoy-9.7pct) in the first three quarters of 2024; net cash from operating activities was 4.207 million yuan, a year-on-year decrease of 97.9%, mainly due to an increase in cash for purchasing goods, receiving labor, and paying employees. The company was affected by new construction projects, and the overall cost rate increased. The sales rate for the first three quarters of 2024 was 3.1% (yoy+0.7pct); the management rate was 9.1% (yoy+2.4pct); the financial rate was 5.3% (yoy+0.3pct); and the R&D rate was 2.3% (yoy+0.1pct).

Cooperation on waste plastics projects is progressing smoothly, and high performance and growth are worth looking forward to. The waste plastic project is progressing steadily, and high business growth is worth looking forward to. The company's self-developed technology for deep cracking of mixed waste plastics into chemical raw materials has made breakthrough progress, and has built a 0.2 million tons/year mixed waste plastic resource comprehensive utilization demonstration project in Shijieyang City, Guangdong Province. The project is currently progressing steadily, and strategic cooperation has been reached with Fujian United Petrochemical, Yueyang Xingchang, China Chemical, and Amcor China. After the project is put into operation, it is a landmark in promoting the chemical recycling of waste plastics worldwide, and is expected to bring new profit growth points to the company.

Investment advice: Due to rising costs and expenses, and unreleased project benefits, etc., the 24-year performance forecast has been lowered. We expect the company to achieve revenue of 1.22/2.23/2.84 billion yuan in 2024-2026 and net profit of 0.15/0.43/0.56 billion yuan, corresponding PE of 115.1/40.1/30.8x. The company is deeply involved in hazardous waste recycling technology, and the waste plastics business can be expected to catalyze in the future, maintaining a “buy” rating.

Risk warning: risk of declining industry demand, increased risk of market competition, risk of production progress falling short of expectations, and risk of accounts receivable.