Incidents. The company released its report for the third quarter of 2024. In the first to third quarter, the company achieved cumulative operating income of 5.036 billion yuan, a year-on-year change of about -8.83%; realized net profit to mother of 0.133 billion yuan, a year-on-year change of about -41.46%. In the third quarter, the company achieved operating income of 1.635 billion yuan, a year-on-year change of -20.8%; net profit to mother was -0.023 billion yuan, a year-on-year change of -131.35%.

Profit levels declined in the third quarter or were affected by market prices and the relocation of local companies. In terms of prices, domestic galvanized sheet and color-coated sheet prices declined in the third quarter. The average domestic galvanized sheet price in the third quarter was 4,597.92 yuan/ton, a year-on-year change of -8.5% and a month-on-month change of -6.7%; the average domestic price of color-coated sheets in the third quarter was 6,208.33 yuan/ton, a year-on-year change of -10.7% and a month-on-month change of -4.5%. Furthermore, the company is located in Fuyang District, Hangzhou City, Zhejiang Province, and the recent relocation of some nearby enterprises may have had a certain impact on the actual operation of the company.

Product prices rebounded in the fourth quarter, so keep an eye on policy changes. Recently, the prices of the company's products have rebounded. As of October 18, 2024, the domestic prices of galvanized sheet and color coated plate were 4,669.00 yuan/ton and 6,450.00 yuan/ton respectively, which are all up from the average price in the third quarter. It is expected that the company's profits may have upward momentum. Furthermore, domestic stimulus policies have recently been introduced one after another. At the same time, in addition to the earlier notice of the State Council on issuing the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, it is expected that the company's demand for galvanizing and color coating may increase under the impetus of the policy.

The implementation of the Nantong project helped increase the company's production scale. To achieve the company's strategic development layout, the company used its wholly-owned subsidiary Huada New Materials (Jiangsu Nantong) Co., Ltd. as the implementing entity to invest in the construction of a “high-performance metal decorative board production project with an annual output of 2.1 million tons” in the Tongzhou Bay Jianghai Joint Development Demonstration Zone in Nantong, using 480 acres of land in the newly acquired sea area. The 2023 annual report shows that during the reporting period, on the basis of completing tasks such as industrial marine use, energy efficiency review, project filing, etc., the project completed environmental impact assessment, some equipment model selection and procurement, provincial maritime department terminal construction approval, etc., and construction began as scheduled. Currently, the project is undergoing gradual construction. If put into operation in May 2025, it will greatly increase the company's production capacity.

Investment advice. The pressure on the company's performance caused by too many short-term disruptors may gradually ease in the future. At the same time, new policies will be introduced one after another. The company's production capacity will continue to increase to maintain the company's profit forecast. The company's net profit for 2024-2026 is estimated to be 3.5, 0.43, and 0.66 billion yuan, respectively. Maintain a “buy” rating.

Risk warning: The company's project commissioning progress falls short of expectations, demand for downstream products falls short of expectations, and economic growth falls short of expectations.