Incident: 2024Q1-3's revenue of 5.136 billion yuan decreased by 17.70%; net profit to mother of 0.126 billion yuan increased by 53.94%; net profit of 0.004 billion yuan decreased by 50.23% after deducting non-net profit of 0.004 billion yuan. Q3 revenue of 1.665 billion yuan decreased by 12.56%; net profit to mother of 0.032 billion yuan increased by 51.22%; after deducting non-net loss of 0.038 billion yuan, a year-on-year increase of 0.008 billion yuan.

Q3 revenue continued to decline year on year, and depreciation helped profit growth: on the revenue side, 2024Q3 revenue also fell by 12.56%, mainly due to weak downstream demand, which compounded the company's control of deliveries to some medium- and high-risk customers.

On the profit side, the Q3 gross profit margin was 22.19% year-on-year +0.83pct, mainly due to declining raw material prices and continuous optimization of product and channel structures. On the cost side, the cost ratio increased by 17.96% to 2.39 pct during the Q1-3 period, and the sales/management/R&D expenses ratio was 8.30%/4.59%/3.72%, respectively, +1.25/+0.85/-0.23pct, compared to +1.25/+0.85/-0.23pct, and cost dilution decreased. Asset and credit impairment losses were $0.159 billion, and the asset and credit impairment loss rate decreased by 3.09% to 1.76pct.

The return of accounts receivable increased by 0.092 billion yuan, leading to a 50.23% decrease in net profit after deduction in Q1-3. Under the combination of bad debts and the low base of the previous period, net profit attributable to mother also increased by 53.94%. Q1-3 The net operating cash flow outflow was 1.504 billion yuan, an increase of 0.655 billion yuan over the same period last year. The company increased its cash payment ratio to suppliers, resulting in an increase of 8.4 pcts in cash payments for raw materials; the revenue ratio increased 8.4 pcts from 98.3%, and the cash on payment ratio increased 33.1 pcts from 142.2%.

Frequent real estate policies are expected to drive demand, and the company will accelerate the expansion of private construction channels to increase its market share. Demand side: Since the second half of 2024, real estate policies have continued to be loosened, including the 926 Politburo meeting to “stop falling and stabilize”, the 929 Executive Meeting of the State Council deployed and implemented, and the 930 “Four Limits Relaxation” new policy. Core cities have also relaxed purchase restrictions and stock mortgage interest rates. Favorable policies are expected to drive demand in the real estate industry chain to bottom up. Supply side: In recent years, with the introduction of new waterproof regulations and the decline in downstream demand, the comprehensive requirements of customers for waterproofing have continued to increase. Some small-scale enterprises have faced greater pressure to survive, and the industry's low-quality and inefficient production capacity has been cleared at an accelerated pace. In an environment where real estate is gradually recovering and the waterproofing industry is gradually becoming clear, the company is expected to increase its market share by focusing on expanding channels, expanding categories, and controlling risks.

Investment advice: We predict that the company's net profit for 2024-2026 will be 0.174/0.235/0.382 billion yuan, a year-on-year growth rate of 35.28%/62.20% in 2025-2026, and 0.16/0.21/0.34 yuan respectively. The latest closing price corresponds to 2024-2026 PE 37.74x/27.90x/17.20x respectively, maintaining the “gain” rating.

Risk warning: macroeconomic downside risks; channel development falls short of expectations; industry competition intensifies.