Keshun Co., Ltd. achieved revenue of 1.665 billion yuan (yoy -12.56%, qoq -16.15%) and net profit of 32.3311 million yuan (yoy +51.22%, qoq -21.42%) in 24Q3. Q1-Q3 2024 achieved revenue of 5.136 billion yuan (yoy -17.70%), net profit of 0.126 billion yuan (yoy +53.94%), after deducting non-net profit of 3.7906 million yuan (yoy -50.23%). The company's third quarter results were slightly lower than our expectations (0.04 billion yuan). Considering that the company's impairment accruals are relatively adequate, and the combined revenue decline has narrowed quarterly, we maintain the “gain” rating.

1-9M24 gross margin improved year-on-year, and cost-side asphalt prices continued to decline with gross profit margin of 23.04% in the first three quarters of 24, +2.20pct year over year, 22.2% gross profit margin in 3Q24, and +1.1/-1.0pct month-on-month. The company continued to promote cost reduction and efficiency. According to Wind, the average price of asphalt, the main raw material, was 3,818 yuan/ton in the first three quarters, -4.1% year over year, and the average price for the 3rd quarter was 3,765 yuan/ton, -5.8%/-2.1% year over month, improving marginal cost-side pressure. Before mid-October, the average price of asphalt continued to fall back to 3,698 yuan/ton. Combined, the company's product price war was suspended, and there may be room for improvement in the gross margin in the future.

The absolute value of 1-9M24 expenses declined slightly, and the revenue scale contracted, leading to an increase in the rate of 17.96% over the previous three quarters, compared to +2.73 pct. Among them, the sales/management/R&D/finance expenses ratio was 8.3%/4.6%/3.7%/1.4%, +1.6pct/+0.85pct/-0.2pct/+0.5pct, and the absolute value of the period cost was 0.92 billion yuan, or -2.9%. Among them, the sales rate increased a lot year-on-year, but its absolute value was -3.1%. The increase is mainly due to the weakening of the ability to dilute income. The rate for the third quarter of a single quarter was 19.30%, +2.43/+2.84pct yoy. The net profit margin for the first three quarters of 24 was 2.46%, +1.14pct year on year; 3Q24 was 1.9%, +0.8/-0.1 pct month-on-month.

1-9M24 put pressure on upstream payments. Net operating cash flow fell 10% year on year. Net operating cash flow for the first three quarters of 24 years decreased by 10% year on year - -1.504 billion yuan, year on year - -0.655 billion yuan, or mainly due to centralized upstream payments. The cumulative cash/payout ratio was 98.3%/142.2%, +8.37/+33.09 pct year on year; 3Q2 net operating cash flow was -0.073 billion yuan, +0.02 billion yuan year over year. At the end of 24Q3, the company's balance ratio/interest-bearing debt ratio was 65.5%/37.5%, +3.7/+6.0 pct year-on-year. As of the end of the third quarter, the net book value of accounts receivable was $4.73 billion, -10.4% YoY, and the turnover ratio was 1.16.

Profit forecasting and valuation

Considering the slow implementation of real estate collection and storage, and the company's expense control falls short of expectations, we raised the impairment and rate assumptions and lowered the 2024-2026 net profit to mother to 0.164/0.295/0.466 billion yuan, corresponding EPS was 0.15/0.26/0.42 yuan (previous value/0.19/0.29/0.43 yuan), respectively. Comparatively, the company's 25-year Wind unanimously expected an average PE value of 21.5 times. Considering that the company's impairment calculation was relatively adequate, profitability was steadily restored in the context of a temporary price war, and the combined revenue decline narrowed quarterly, giving the company 25 times PE in 25 years, corresponding to a target price of 6.56 yuan (previous value of 4.81 yuan).

Risk warning: Tour Real Estate continues to be weak; raw material prices have risen sharply; price competition has intensified.