Jianlang Hardware released its three-quarter report: Q3 achieved revenue of 1.7 billion yuan (yoy -22.46%, qoq -7.81%) and net profit of 27.9756 million yuan (yoy -78.71%, qoq -44.89%). Q1-Q3 2024 achieved revenue of 4.91 billion yuan (yoy -11.51%) and net profit of 32.8657 million yuan (yoy -77.22%) to mother.

The company's net profit for the third quarter was lower than our expectations (0.121 billion yuan), mainly due to the fact that the decline in revenue for the third quarter exceeded expectations, compounded by the rigidity of the cost-side performance. However, considering that under the support of a package of incremental policies, real estate sales may be expected to stop falling and stabilize, and the company's revenue is sensitive to real estate sales, so we maintain a “buy” rating.

Gross margin remained stable overall, or continued to grow due to higher gross profit overseas business

The gross profit margin for the first three quarters of 24 was 31.30%, -0.27pct year over year, 31.4% gross profit margin for 3Q24, and -0.8/-0.5pct month-on-month. The overall gross margin remained relatively stable. We speculate that the company continued to drive cost reduction and the steady increase in overseas revenue since this year. According to Wind, the average price of stainless steel/aluminum alloy as the main raw material was -6.4%/+4.1% year-on-year in the first three quarters, and -6.8%/+2.7% year-on-year in the third quarter, with little fluctuation on the cost side.

The absolute value of sales expenses decreased year over year, and credit impairment increased

The cost rate for the first three quarters was 27.38%, +1.37pct. Among them, the sales/management/R&D/finance expenses ratio was 16.77%/6.13%/4.19%/0.28%, +0.29/+0.75/+0.43/-0.1pct. The absolute value of the period expenses was 1.344 billion yuan, -6.8% year over year. Among them, the absolute value of sales expenses decreased a lot, -9.9% year on year. Credit impairment losses increased by 72.05% over the same period last year, mainly due to increased accounts receivable and increased preparation for bad debts. The net profit margin for the first three quarters of 24 was 0.67%, -1.93pct year on year; 3Q24 was 1.6%, 4.3/-1.1 pct month-on-month.

Operating cash flow performance was positive in the first three quarters, with declining revenue receivable turnover putting pressure on net operating cash flow of 0.01 billion yuan in the first three quarters of 24, +0.108 billion yuan year on year. Among them, the cash/cash ratio was 93.6%/80.4%, respectively, -14.9/-29.0 pct year on year, and 0.2 billion yuan of operating cash flow for the third quarter, compared to -39.4% year on year. By the end of the third quarter, the net book value of accounts receivable was 3.9 billion yuan, -8.6% year-on-year, and the turnover ratio was 1.32. The background of a large decline in revenue will be slightly under pressure next week.

Profit forecasting and valuation

Considering the increase in the share of the company's installation business in recent years, short-term settlement is still under pressure. Revenue from 2024-2026 was reduced to 7/7.7/8.5 billion yuan, net profit due to mother was 0.17/0.24/0.29 billion yuan, and the corresponding EPS was 0.47/0.68/0.81 yuan (previous value 0.90/1.04/1.16 yuan). Comparatively, the company's 25-year Wind unanimously expected an average PS value of 2.5 times. Considering that the company and real estate sales are highly sensitive, market revenue is expected to stabilize in the future with the support of a package of incremental policies. However, due to the rigidity of short-term cost performance, it will still take time to recover revenue and profit. The company was given 2 times PS in 25 years, corresponding to a target price of 43.37 yuan (previous value 29.51 yuan).

Risk warning: Policy support falls short of expectations, demand growth in the construction hardware market is slowing down, and raw material prices have risen sharply.