incident. Xinjufeng released its 2024 three-quarter report. 2024Q3 achieved revenue/net profit/net profit deducted from net profit of 0.426/0.039/0.036 billion yuan, an increase of 15.31%/19.91%/17.35% year on year; in the first three quarters of 24, it achieved revenue/net profit to mother/ net profit of 1.249/0.125/0.112 billion yuan, up 0.98%/11.91%/3.37% year on year.

The introduction of the policy increased customer expectations, and preparation of goods in the third quarter boosted overall revenue growth. 24Q3's revenue was 0.426 billion yuan, up 15.31% year over year. The company adopts a “sales to determine production” order-based production model and carries out daily production according to orders placed by customers. In the second half of the year, with the introduction of a series of national policies, customers expect downstream demand to improve in the third quarter to drive overall revenue growth.

The level of profit remained stable. 24Q3 gross margin/net margin was 23.24%/9.10%, +0.29/0.35pct year over year, respectively. The overall profit level remained stable. The 24Q3 sales/management/R&D/finance expense ratios were 2.10%/7.50%/0.79%, respectively. The year-on-year change was 0.11/-0.91/+0.08/+1.42pct. The decline in management expenses was mainly due to equity incentive expenses of 9.87 million yuan in the same period last year, and the increase in financial expenses ratio was mainly due to an increase in loan interest. 24. Net operating cash flow for the first three quarters was 0.309 billion yuan, up 48% from the same period, mainly due to a decrease in raw material prices while the company digested inventory and reduced procurement of raw materials. As of 24Q3, the company's balance ratio was 26.10%, up 1.85pct year on year; notes receivable and accounts receivable were 0.347 billion yuan, a year-on-year change of -15.16% from the beginning of the year.

Investment advice: Internal: The company's production capacity is expanding rapidly. Currently, production capacity has reached 28 billion packages (10 billion packages added). Thanks to Yili's continuous increase in its share of major customers, the increase in capacity utilization is expected to lead to continuous improvement in profit levels. External: The company has accelerated the pace of industrial integration. It has now completed the acquisition of Fenmei. The company's production capacity has reached the next level. At the same time, it has filling machine production capacity and is expanding upstream in the industrial chain. Internal and external solutions help the company enhance its competitiveness, and its market share is expected to increase further. We expect net profit attributable to the parent company in 2024-2026 to be 0.18/0.2/0.23 billion yuan, and the corresponding PE is 21X/19X/17X, maintaining the “recommended” rating.

Risk warning: Competition in the industry increases risk, and dependence on core customers is too risky.