3Q24 results are in line with our expectations

The company announced 1-3Q24 results: revenue of 0.34 billion yuan, +14.3% year on year; net profit of 2.72 million yuan, compared to -16.37 million yuan in the same period last year, reversing year-on-year losses. There was a year-on-year recovery in the first three quarters of this year, but profit levels are still under pressure from the same period in 2022.

Losses were reversed in the third quarter of a single quarter. The 3Q24 company achieved revenue of 0.123 billion yuan, +30.8% year-on-year; net profit of 2.06 million yuan, which turned a year-on-year loss into a profit. Since the third quarter, the company's management has continued to be smooth, and orders from the steel, petrochemical, coal and other industries have been implemented at an accelerated pace, and the company's performance has picked up moderately, in line with our expectations.

Management continues to be tightened, and profitability is beginning to pay off. 1-3Q24's gross margin -0.7ppt to 60.7% yoy. 1-3Q24's sales/management/R&D/finance expense ratios were -0.7/-5.1/-3/-7.1ppt to 29.8%/10.7%/25.7%/-0.3%, respectively. Continued management tightening has shown results. Under the combined influence, the company's 1-3Q24 net margin was +6.2ppt to 0.8% year-on-year. 1-3Q24 operating cash flow was 7.33 million yuan, compared to -66.12 million yuan in the same period last year, a significant improvement.

Development trends

Multi-industry layout & management efficiency improvements are beginning to show results. 1) Balanced development of multiple industries: The company takes the development of multiple industries as the foundation to smooth out fluctuations in demand in a single industry. The company implemented a subscription system in the steel industry and continued to grow in the amount of large orders, accelerated the establishment of agent channels in the coal industry, participated in new tenders for refining reciprocators and pumps in the petrochemical industry, and continued to cooperate and develop with major customers such as Zijin Mining and Luoyang Molybdenum in the non-ferrous industry. 2) Remarkable results in improving management efficiency: 1-3Q24 companies all showed year-on-year improvements in terms of indicators such as cost ratio, operating cash flow, and turnover ratio during the period, reflecting management results such as the company's special repayment plans and plans to improve human efficiency. It is recommended to focus on the inflection point of the company's operation and management.

Profit forecasting and valuation

We basically maintain the 2024-2025 net profit forecast of 0.092/0.127 billion, and the current stock price corresponds to 2024-2025 P/E 27.5/20.0x, respectively. Considering the recent increase in the sector center, we raised our target price by 14.3% to 40 yuan, corresponding to the 2024-2025 P/E of 35/26x, respectively. The current stock price increase space is 28.5%, maintaining the “outperforming industry” rating.

risks

Industry demand falls short of expectations, management efficiency falls short of expectations, and promotion of new products falls short of expectations.