The company achieved net profit of 0.022 billion yuan in the third quarter, down 86.27% year on year. The company released its quarterly report for 2013. The first three quarters achieved revenue of 5.06 billion yuan, down 12.8% year on year, realized net profit to mother 0.3 billion yuan, down 29.74% year on year, and net profit after deducting non-return to mother 0.28 billion yuan, down 33.17% year on year. Among them, Q3 achieved revenue of 1.512 billion yuan, down 27.66% year on year, net profit to mother 0.022 billion yuan, down 86.27% year on year, net profit not attributable to mother was 0.022 billion yuan, down 86.62% year on year.

Glass soda prices are falling, and profits are under pressure in the short term

1) Glass sector: According to Zhuochuang Consulting, the factory price of Q3's 5mm plain white float glass was about 76.5 yuan/heavy box, -31.3%/-15.0% year-on-month, respectively, and the factory price of ultra-white float glass was about 169 yuan/heavy box, which declined slightly year-over-year/month-on-month. In January-September, the completed area of commercial housing fell 24.4% year on year. Affected by the decline in terminal demand, prices were under pressure. As of the end of September, manufacturers had inventories of about 63.81 million heavy boxes, up 23.99 million from the previous year. Prices improved slightly in October, leading to the release of demand from middle- and downstream and off-market stocks. Producers' inventory pressure was partially relieved. Recently, some production lines had maintenance and discontinuation plans, and the total supply side volume may decrease, supporting glass prices.

The company's glass sector has obvious product structure advantages. Profits at the Ningxia base and Malaysia base increased significantly in the first half of the year, and TCO Glass continued to advance the business progress of overseas customers. 2) Soda ash sector: We estimate that the average price of heavy alkali in Q3 East China was about 1,860 yuan/ton, down 26.3%/15.7% year over year, respectively. It is expected that the profit contribution of the company's Q3 soda ash sector will also decline month-on-month.

Q3 The gross margin dropped significantly, and the overall cost ratio was stable

The company's overall gross profit margin for the first three quarters was 17.87%, down 0.29pct year on year. Among them, Q3's gross profit margin for the single quarter was 12.64%, down 7.82/5.54 pct yoy and month-on-month respectively. The Q3 company's overall expense ratio was 10.0%, +0.3 pct year over year. Among them, the sales/management/ R&D/finance expenses ratio was -0.02/-0.60/+0.74/+0.25pct year on year, and the overall cost side was relatively stable. Ultimately, Q3 net interest rate without return to mother was 1.5%, and -6.6/-4.0pct year over month.

Expect TCO to increase and maintain a “buy” rating

The company has the advantage of integrating the soda ash and glass industry chain. Through product restructuring, profitability is continuously enhanced. With the promotion of domestic perovskite industrialization and the promotion of overseas customer business cooperation, TCO glass is expected to gradually expand, and we continue to be optimistic about the company's medium- to long-term growth. Considering the decline in glass and soda ash prices, the company's net profit forecast for 24-26 was lowered by 0.33/0.52/0.66 billion yuan (previous value 0.5/0.7/0.86 billion yuan). Referring to comparable companies, the target PE was given 24 times for 25 years, corresponding to the target price of 8.77 yuan, maintaining the “buy” rating.

Risk warning: Downstream demand falls short of expectations, industry competition intensifies, production costs rise sharply, company operating and financial risks, etc.