2024Q3 achieved a good recovery in revenue and profit from a low base, mainly due to continued rapid growth in the gas operation business, and continued to perform well in the three major business segments. The company continues to deepen the synthetic gas differentiation circuit, and the level of internal return is expected to gradually increase. In terms of equipment, the company continues to develop new fields and is progressing smoothly; furthermore, the traditional steel sector is expected to usher in marginal changes. In the context of ultra-low emission transformation, the company's compressors and energy recovery turbines with energy efficiency advantages are expected to increase in demand.

occurrences

In the first three quarters of 2024, the company achieved revenue of 7.289 billion yuan, +0.28% year over year; realized net profit of 0.666 billion yuan, -8.25% year over year; net profit after deducting non-return to mother 0.622 billion yuan, or -7.25% year over year. In the third quarter of 2024, revenue was 2.285 billion yuan, +9.70% year over year; net profit to mother was 0.208 billion yuan, +5.37% year over year; net profit after deducting non-return to mother was 0.188 billion yuan, +3.41% year over year.

Brief review

1. The 2024Q3 performance growth rate was gradually restored, and the company's revenue and profit recovered relatively well under a low base with excellent cash flow and high quality development. The profit decline gradually narrowed in the first three quarters. Since the beginning of 2024, the gas operation business has been growing steadily, with the highest performance in the three major business segments. Looking ahead to 2024 and beyond, the company's gas projects will continue to be put into operation one after another, which will continue to contribute significantly to the company's overall performance.

In the first three quarters of 2024, the company's comprehensive gross margin fell 0.54 pct year on year to 22.86%, which is expected to be mainly due to an increase in the share of gas operations with relatively low gross margin. By business, as the share of EPC projects in the system service sector declines, there is room for improvement in the company's comprehensive gross margin in the future. In the first three quarters of 2024, the company's expense ratio increased by 0.38 pct to 9.00% year on year; among them, the sales expense ratio increased slightly by 0.08 pct to 2.42% year on year, the management expense ratio decreased by 0.33 pct to 5.22% year on year, the R&D expense ratio increased 0.72 pct to 3.84% year on year, and the financial expense ratio decreased by 0.09 pct year on year to -2.48% year on year. The company's net interest rate fell 0.50pct year-on-year to 10.36% in the first three quarters of 2024.

In the first three quarters of 2024, net cash flow from the company's operating activities was 0.881 billion yuan, a year-on-year decrease of 19.69%, but it was still significantly higher than the net profit returned to mother during the same period; showing that the company had good repayments and achieved high-quality development.

2. Equipment: New fields continue to develop, and the traditional steel sector is expected to usher in marginal changes and continuous development in new fields: the company is actively expanding new markets and new fields. 2024Q3 signed a cogeneration project supporting the deep processing of 0.6 million tons of corn for a user, and signed a 0.2 million tons/year hybrid plastic resource comprehensive utilization demonstration project supporting an exhaust gas recovery device backpressure steam turbine generator set for a user. In the field of compressed air energy storage, the company customized and promoted the “axial+centrifugal, multi-cylinder series” solution, achieving full coverage of the design and manufacturing capacity of compressed air energy storage core equipment with different energy storage scales from small 10MW to large 660MW.

The traditional steel sector is expected to usher in marginal changes: At the 2024 third quarter information conference of the China Iron and Steel Association on October 25, the vice president of the Steel Association stated that the key tasks are to prevent “internal rolling” vicious competition and achieve high-quality and effective development. On the one hand, promoting capacity management and joint restructuring to promote steel production-oriented superior production capacity, which is expected to raise the profit level of the steel industry. On the other hand, to promote ultra-low emission transformation, extreme energy efficiency, and green and low-carbon development, steel companies in key regions will basically complete ultra-low emission transformation by the end of 2025; compressors and energy recovery turbines with outstanding energy efficiency advantages are expected to usher in greater demand, thus fully benefiting the company.

3. Gas operation: Gas revenue continued to grow rapidly in the first three quarters of 2024, and synthetic gas advantages continued to strengthen in the first three quarters of 2024. Qinfeng Gas's revenue increased 17% year on year, and liquid production increased 4.39% year on year, all the highest in history during the same period. In terms of new gas orders, in August 2024, Kaifeng Shaangu Gas plans to invest in the construction and operation of a 0.19 millionNm3/h synthetic gas project supporting Henan Jinkai Chemical. The total investment is estimated at 0.581 billion yuan, and the cooperation period is 20 years. The implementation of the project achieved a zero breakthrough in the field of coal-to-synthetic gas from Qin Feng Gas, continuously strengthened the company's differentiated advantages in the new synthetic gas circuit field, and increased the overall return on the company's gas business.

Investment advice: We expect the company to achieve revenue of 10.344, 11.611, and 13.362 billion yuan respectively, and net profit to mother of 10.50.6, 1.191, and 1.405 billion yuan, respectively, +3.47%, +12.81%, and +17.97% year-on-year, corresponding to the 2024-2026 dynamic PE of 14.16, 12.55, and 10.6 4 times, respectively, maintaining a “buy” rating.

Risk analysis

1) The gas project is progressing less than expected

The company's gas operation business has maintained rapid growth in recent years, and it already has sufficient contract reserves. However, if the construction of a gas project that already has a contract falls short of expectations, the transformation from contract to gas operating revenue performance will fall short of expectations, thus affecting the company's overall growth rate.

2) Risk of declining demand in traditional downstream industries

The company's downstream mainly consists of traditional industries such as metallurgy and petrochemicals. Affected by the cyclicality and uncertainty of economic development and the country's macroeconomic policy regulation, the market where the company's traditional products are located has conditions such as a slowdown in downstream demand growth, overcapacity, and a slowdown in the growth rate of investment in new major equipment, which in turn will have a certain impact on the revenue of the company's traditional business.