The company announced results for the third quarter: Q3 revenue of 24.3 billion yuan, +1.2% year over year; net profit attributable to mothers/net profit of 0.5/0.49 billion yuan without return to mother, -3.5%/-6.0% YoY. In the first three quarters, the company achieved revenue of 78.93 billion yuan, +0.4% year over year; net profit due to mother/net profit of 1.46/1.52 billion yuan, +3.1%/+10.6% year over year. The slight decline in the company's Q3 performance was mainly due to a marked increase in R&D expenses. We believe that the company is expected to continue to benefit from the rising nuclear power boom and maintain a “buy” rating.

Q3 Revenue growth increased year-on-year, and gross margin declined slightly year-on-month

The company's revenue in Q3 was +1.2% year-on-year, and the growth rate was 1.4 pct higher than in Q2. We expect the progress of nuclear power engineering and industrial and civil construction business projects to accelerate. The company's gross profit margin for the first three quarters of 24 years was 10.2%, -0.04pct year over year, 11.0% in Q3, and -0.6/-0.3pct month-on-month. We expect it to be mainly affected by the pace of project settlement. As the company's gross margin is high but the share of nuclear power engineering revenue continues to rise, we believe there is still room for the company's gross margin to rise in the future.

The R&D cost rate increased slightly, and the scale of impairment continued to narrow

The company's expenditure rate for the first three quarters of 24 years was 6.8%, +0.1 pct. Among them, the sales/management/R&D/finance expenses rates were 0.03%/2.0%/2.7%/2.0%, respectively, -0.01/-0.2/+0.4/-0.1 pct. The increase in R&D expenses is expected mainly due to the company increasing R&D in key construction fields such as nuclear power. The company's net operating cash flow for the first three quarters of 24 was -13.66 billion yuan, +2.28 billion yuan year on year, and -0.76 billion yuan in Q3, +1.09 billion yuan year on year. Cash flow improved. Q3 The company's credit/asset impairment was -0.02/-0.01 billion yuan, compared to +0.5/+0.03 billion yuan. Partial impairment reversals led to a continued narrowing of the company's impairment scale. We expect that as local government debt increases, the scale of the company's project repayment and impairment is expected to further improve.

Nuclear power investment continued to rise in the first three quarters. We expect that industry sentiment will spread to the company's fundamentals and that the National Assembly will review and approve 11 nuclear power units at once in August '24. According to the National Energy Administration, China's nuclear power infrastructure investment completed in the first three quarters of '24 was 80.3 billion yuan, +36.3% over the same period last year, and the nuclear power boom continued to rise. According to the company's announcement, the company signed a new order of 106.73 billion yuan in the first three quarters of 24, or +11.2%. We expect that as the construction progress of nuclear power projects accelerates, the company's nuclear power project orders and revenue are expected to continue to grow rapidly.

Profit forecasting and valuation

Considering the impact of rising R&D expenses on the company's profit margin, we lowered the 24-26 net profit forecast to 2.25/2.55/3.04 billion yuan (previous value 2.43/2.83/3.27 billion yuan). Using the segmented valuation method, Wind, a comparable nuclear power/industrial and civil construction company, agreed on an average expected average of 15.6x/6.0xPE, gave the nuclear power project a 25-year net profit of 1.904 billion 15.6xPE, and a 25-year net profit of 0.646 billion to mother, and a 25-year net profit of 5.0xPE of 0.646 billion to the mother. Combining the two businesses, the company was given a 25-year target market value of 32.9 billion yuan and a target price of 10.93 yuan (previous value of 9.65 yuan), maintaining a “buy” rating.

Risk warning: The pace of nuclear power approval falls short of expectations, project progress falls short of expectations, accounts receivable risk.