Company announcement: COFCO Science and Technology released its 2024 three-quarter report. In the first three quarters, the company achieved operating income of 1.33 billion yuan (yoy -6.0%), net profit due to mother 0.115 billion yuan (yoy +8.50%), and net profit not attributable to mother of 0.103 billion yuan (yoy +10.50%). In the third quarter of a single quarter, the company achieved revenue of 0.44 billion yuan (yoy +7.4%, qoq -18.4%), net profit to mother 0.033 billion yuan (yoy +36.0%, qoq -31.6%), and net profit of 0.029 billion yuan (yoy +55.9%, qoq -31.0%) in the single quarter. The performance was in line with expectations.

Net interest rate rebounded 0.82pct in a single quarter, and profitability improved. The company's comprehensive gross profit margin for the first three quarters was 26.7% (yoy+3.3pct), and the net profit margin was 8.5% (yoy+0.8pct). The company's comprehensive gross profit margin for the third quarter of the single quarter was 26.52% (yoy-1.8pct, qoq-0.4pct), and the net profit margin was 7.3% (yoy+0.82pct, qoq-1.9pct). The cost rates for the four sales/management/R&D/finance items of the three companies were 1.15%/8.91%/7.07%/-0.78%, respectively, -0.24/+0.76/-0.58/-0.62 pct, respectively. The overall cost ratio decreased by 0.68 pct.

The net cash outflow from the company's cumulative operating activities in the first three quarters was 0.268 billion yuan, an increase of 0.174 billion yuan over the previous year. The main reason was the increase in cash for purchasing goods and paying for labor services.

R&D capabilities continue to lead. The company has the advantage of leading R&D capabilities. It has 4 provincial and ministerial technical research centers, including the National Engineering Laboratory for Grain Processing Machinery and Equipment, the National Food Processing Equipment Engineering Technology Research Center, 2 national R&D and innovation platforms; the National Food Administration's Grain Processing Engineering Technology Research Center, and the Grain and Oil Processing Equipment Engineering Technology Research Center. As of the first half of 2024, the company has obtained 614 patents and formulated nearly 100 industry specifications and standards.

The long-term logic of granary construction remains unchanged; it is expected that the “14th Five-Year Plan” and “15th Five-Year Plan” will maintain a high growth rate. In June 2023, the Ministry of Agriculture and Rural Affairs, together with the National Development and Reform Commission, the Ministry of Finance, the Ministry of Natural Resources and other departments jointly issued the “National Modern Facility Agriculture Construction Plan (2023-2030)”, which proposes to focus on building 0.035 million storage and preservation facilities by 2025 to make up for shortcomings in drying facilities and equipment in grain production areas, and the drying capacity of grain production areas will reach 65%; by 2030, a total of 0.06 million storage and preservation facilities will be built, and continue to complete the renovation and upgrading of a number of old food drying centers (points), etc. . We expect that granary construction will maintain a high growth rate in the next five to six years. The company is expected to fully achieve its own growth in the process of solving the problems that China's grain storage still faces, such as insufficient total storage capacity, unreasonable layout of effective storage areas, and still relatively poor grain storage facilities and technical standards in some regions.

Investment analysis: The company's performance for the third quarter was in line with expectations. We maintain our original profit forecast. We expect to achieve net profit of 0.27/0.32/0.37 billion yuan in 2024-2026, +23.2%/+17.3%/+16.4%, respectively. The price-earnings ratios per share corresponding to the October 29 closing price were 22, 19, and 16 times, respectively. The company has leading advantages in granaries, cold chains, equipment manufacturing, etc. We are optimistic that the company will fully grow during the construction of granary facilities in China and maintain the company's “gain” rating.

Risk warning: Granary construction and cold chain logistics construction are below expectations, and the pace of on-hand order conversion falls short of expectations. The company issued the “Notice on Receiving the Decision on Administrative Supervision Measures from the Jiangsu Regulatory Bureau of the China Securities Regulatory Commission” in October 2024 to pay attention to related risks.