Incidents. On October 30, 2024, the company released the 2024 three-quarter report. In the first three quarters of 2024, the company achieved total operating income of 0.521 billion yuan, a year-on-year decrease of 0.86%; realized net profit of 0.09 billion yuan, a year-on-year decrease of 29.91%; and realized net profit of 0.084 billion yuan after deduction, a year-on-year decrease of 34.12%.

The profit side continued to decline, and accrued depreciation put pressure on profits. Looking at the third quarter of a single year, the company achieved total operating income of 1.03 yuan, a year-on-year decrease of 22.75%; realized net profit of 9.1 million yuan, a year-on-year decrease of 67.85%; realized net profit of 4.74 million yuan after deduction, a year-on-year decrease of 83.32%.

① Profitability continued to decline: The gross profit margin\ net margin for the first three quarters was 34.07%\ 17.47%, respectively, down -7.10pct\ -7.05pct from the same period last year, and the profit side still showed a downward trend.

② The company's expense ratio for the first three quarters was basically the same: the sales, management, R&D, and finance expenses for the first three quarters of 2024 were 4.06%\ 5.65%\ 3.21%\ -1.83%, respectively. Compared with the first three quarters of 2023, the change was +0.09pct\ 1.04pct\ +0.08pct\ -1.15pct, which was basically the same as the same period last year.

③ Operating pressure has increased: The company's operating cash flow changed from positive to negative in the first three quarters, and operating cash flow for the first three quarters was -0.028 billion yuan. Meanwhile, in the third quarter, the company depreciated 13.89 million yuan, an increase of 699.65% over the previous year, mainly due to accounts receivable repayment mitigation and preparation for bad debts.

Demand for real estate infrastructure is weakening, and the gravel aggregate industry is under pressure. Due to the continuous decline in demand in the real estate and infrastructure sectors in recent years, the gravel aggregate industry is under pressure. In the first half of 2024, the country's gravel production was 7.54 billion tons, down 10.4% year on year. It is expected that the industry will still be under heavy pressure in the second half of the year. China's gravel industry has moved from incremental expansion to a new stage of development with equal emphasis on improving stock quality and efficiency and incremental structural adjustment. The country is actively promoting the steady development of related industries such as real estate and infrastructure, and accelerating the “three major projects” such as affordable housing construction, “normal and emergency” public infrastructure construction, and urban village renovation, which is expected to support the demand side of gravel in the future.

Real estate investment declined, and some fund-raising projects were postponed until 2026. Since the overall pressure on the real estate industry has not abated significantly in recent years, the growth rate of related development investment and infrastructure investment has continued to decline. Downstream customers of construction waste recycling equipment tend to be cautious about investing in additional fixed assets and upgrading equipment. The company took the initiative to slow down the construction progress of the construction waste resource recycling equipment production base construction project (Phase I), and the scheduled usable date was extended from September 30, 2024 to March 31, 2026.

Maintain an “Overweight” rating. The company is a high-tech high-end mining equipment supplier in China. Affected by the downstream gravel industry, the company's performance declined. We predict that the company's net profit for 2024-2026 will be 1.00 (previous value 2.25) /1.19 (previous value 2.86) /0.134 billion yuan, respectively, corresponding PE of 22.1, 18.6, and 16.5 times, respectively. Maintain an “Overweight” rating.

Risk warning: risk of policy changes; risk of fund-raising projects falling short of expectations; risk of information used in research reports not being updated in a timely manner; risk of deviations in industry size estimates.