The company announced 24Q3 results: revenue of 2.31 billion yuan (yoy -3.23%, qoq -5.29%); net profit to mother 0.401 billion yuan (yoy +1.31%, qoq +26.86%). 24Q1-3's cumulative revenue was 7.143 billion yuan (yoy +16.07%); net profit to mother was 1.045 billion yuan (yoy -5.68%). The year-on-year decline was mainly due to the disposal of Yongxing Materials' shares in 23 to contribute investment income. After deducting investment income from associated enterprises, net profit to mother was 0.975 billion yuan (yoy +52.34%), and main business profit increased year-on-year. The company is a leader in industrial stainless steel pipes. The high-end process is progressing steadily. High-value-added products support stable and positive profits, and maintain a “buy” rating.

Main business is stable and improving, 24Q3 gross margin +8.30pct month-on-month

According to the company's three-quarter report, the overall gross margin of 24Q1-Q3 was 26.93% (yoy+2.16pct), of which 24Q3 gross margin was 31.15% (yoy+3.46pct, qoq+8.30pct), all of which improved year-on-month. In terms of expenses, the company's expense ratio was 10.58% (yoy-0.37pct) during the Q1-Q3 period, which remained stable. Among them, the financial expense ratio was -1.06% (yoy-0.63pct), mainly due to an increase in interest income and exchange earnings. In terms of investment income, 24Q1-Q3's investment income in joint ventures was 0.069 billion yuan, down about 70.2% year on year. The year-on-year decline was mainly due to the disposal of Yongxing Materials' shares in 23 and the weak boom in the lithium sector, and Yongxing Materials' profits declined. The company's net profit after deducting the investment income of the joint venture was 0.975 billion yuan (yoy +52.34%), and the main business profit increased year-on-year.

The downstream petrochemical industry is weak. Contrary to the trend, profits have maintained good growth. Since this year, demand for oil and gas pipes has weakened due to changes in demand in the oil and gas industry and trade protection policies in some foreign trade regions; in the chemical sector, industry profits are weak against the backdrop of weak global demand and rapid growth in production capacity. China's chemical product price index fell from 4621 at the beginning of the year to 4374 on October 29. The pace of industry capital expenditure has clearly slowed. According to the three-barrel oil annual report, the total capital expenditure for 2024 is estimated to be 561 billion yuan, a year-on-year decrease of 3.28%. Against the backdrop of weak downstream demand, the company's high-end process is progressing steadily. The company is actively exploring domestic and foreign petrochemical and gas high-end product markets. At the same time, profits from alloy companies, EBK, and pipe fittings business layouts have begun to be released, and profits have maintained good growth against the trend.

A target price of 26.66 yuan was given, maintaining the “buy” rating

We slightly lowered the investment income assumption and raised the main business gross margin assumption. The company's EPS is expected to be 1.49/1.72/1.91 yuan (previous value 1.52/1.72/1.92 yuan), which is comparable to the average PE (2025E) of 10.9X. As a leader in the industrial stainless steel pipe industry, the company was given a 25-year PE valuation of 15.5 times, corresponding to a target price of 26.66 yuan (previous value of 23.56 yuan), maintaining the “buy” rating.

Risk warning: Downstream demand falls short of expectations, raw material prices fluctuate greatly, and capacity release falls short of expectations.