Incident: 2024Q1-3's revenue of 4.91 billion yuan decreased by 11.51%; net profit to mother of 0.033 billion yuan decreased by 77.22%; after deducting non-net profit of 1.3064 million yuan, a decrease of 99.04%. Q3 revenue of 1.7 billion yuan decreased by 22.46%; net profit to mother of 0.028 billion yuan decreased by 78.71%; after deducting non-net profit of 0.018 billion yuan, decreased by 86.14%.

Demand pressure affected revenue, and the calculation led to a decline in Q3 performance: on the revenue side, the revenue growth rate of 2024Q1-Q3 in a single quarter was 0.85%/-7.86%/-22.46%, respectively. The month-on-month decline in growth was mainly due to a decrease in the number of new projects added by the company and a decline in sales of products highly related to real estate in the context of real estate fluctuations. On the profit side, Q1-Q3 gross margins were 30.41%/31.91%/31.37%, respectively, compared to +0.27/+0.01/-0.79pct, respectively. The decline in Q3 gross margin was mainly due to an increase in raw material prices, and the average price of copper/aluminum/zinc was +9%/+4%/+12%. On the cost side, the cost ratio increased by 27.38% to 1.37 pct during the Q1-3 period, and the sales/management/R&D expenses ratio was 16.77%/6.13%/4.19%, respectively, +0.29/+0.75/+0.43pct, respectively, and the cost dilution effect weakened. Asset and credit impairment losses were $0.145 billion, and the asset and credit impairment loss rate of 2.95% increased by 1.43 pct. Demand declined and accruals increased, and net profit from Q1-3 fell by 77.22%, while impairment surged back to the same increase of 0.023 billion yuan, driving a 99.04% decrease in net profit after deducting non-net profit. 2024Q1-3 net cash flow from operating activities of 0.011 billion yuan improved 0.108 billion yuan year over year; revenue ratio decreased by 14.9 pcts by 93.6%; and current payment ratio decreased by 29.0 pcts.

As real estate relaxation progresses, wait for demand to pick up: After the September 26, 2024 Politburo meeting emphasized “real estate declines and stabilized,” there were frequent policy relaxation policies in core cities, and government debt was also being actively promoted. In the current environment of overall relaxation, the gradual recovery of real estate may drive the company's main business to continue to recover. In addition to real estate, the company also continues to develop new project scenarios such as industrial parks, factories, and small and medium-sized hotels to meet fragmentation needs. In addition, the company is also committed to developing overseas markets. In recent years, it has set up 16 overseas warehouses to replicate Chinese warehousing sales overseas to respond quickly to customer supply needs. Currently, the products have been sold to more than 100 countries and regions.

Investment advice: We predict that the company's net profit for 2024-2026 will be 0.116/0.277/0.404 billion yuan, a year-on-year growth rate of -64.27%/+139.35%/+45.94%, corresponding EPS of 0.33/0.78/1.14 yuan, respectively. The latest closing price corresponds to 2024-2026 PE 90.53x/37.82x/25.92x, respectively. Maintain an “Overweight” rating.

Risk warning: the expansion of new categories falls short of expectations; industry competition intensifies; channel broadening falls short of expectations, etc.