Q3 performance declined month-on-month, waiting for demand recovery to drive performance recovery. Maintaining a “buy” rating of 2024Q1-Q3, the company achieved revenue of 2.476 billion yuan, a year-on-year decrease of 3.90%, and achieved net profit of 0.079 billion yuan to mother, a year-on-year decrease of 44.43%. Among them, in the 2024Q3 single quarter, the company achieved revenue of 0.912 billion yuan, down 0.35% year on year and 7.33% month on month; realized net profit to mother 0.025 billion yuan, down 43.07% year on year and 21.37% month on month. As demand in the downstream real estate industry continues to be pressured, the company's performance is low. We lowered the company's profit forecast for 2024-2026. The estimated net profit to mother is 1.17 (-0.81), 1.53 (-1.02), 2.04 (-1.13) billion yuan, and EPS is 0.27 (-0.19), 0.35 (-0.24), and 0.47 (-0.26) yuan, respectively. The current stock price corresponds to PE at 29.8, 22.8, and 17.0 times, respectively. We are optimistic that the company is a leading water reducing agent. In the future, as downstream demand picks up, the performance is expected to be the first to recover and maintain a “buy” rating.

Q3 The average price of high-performance water reducing agents decreased slightly month-on-month, and functional materials maintained a boom 2024Q3. The company's sales volume in the high-performance water reducing agent, high-efficiency water reducing agent, and functional materials sector was 0.2866, 0.0041, 0.0892 million tons, respectively, -4.05%, -16.33%, and +8.25% month-on-month; operating income was 0.488, 0.012, 0.186 billion yuan, respectively, -8.20%, -18.00%, and +11.23% month-on-month; the calculated average price was 1,704, 2,822, respectively 2,086 yuan/ton, -4.33%, -2.00%, +2.75% month-on-month. Furthermore, as of 2024Q3, the size of the company's notes and accounts receivable was 2.823 billion yuan, down 2.96% from 2023Q3. Downstream concrete water reducing agents are mainly in the real estate market and various infrastructure projects. Most of the company's partners are state-owned enterprises, state-owned enterprises, and high-quality local commercial mixed enterprises. In the future, as local government debt conversion work continues and the real estate market gradually stops falling and stabilizes, the company's financial structure is expected to continue to improve.

Overseas business is developing rapidly, and businesses such as testing business and functional materials are expected to continue to grow. The company continues to expand its market share in transportation, energy, water conservancy, military and other fields around development strategic goals. The share of new products such as functional materials in revenue is steadily increasing. While maintaining the steady development of its main business, diversified sectors such as testing and consulting business and waterproof protective materials have grown significantly. At the same time, the company's overseas business achieved rapid growth, and continued to explore many new regional markets in Southeast Asia and other “Belt and Road” regions, showing strong growth potential. We are optimistic about the collaborative development of multiple sectors of the company, which is expected to usher in business recovery along with economic recovery.

Risk warning: Production capacity investment falls short of expectations, a sharp decline in downstream demand, and a decline in the macroeconomy.