Revenue/net profit to mother for the first three quarters was +19.3%/-25.4% year-on-year, after deducting non-net profit +138.6%, Blum Oriental released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 6.07 billion yuan, a year-on-year increase of 19.3%, net profit of 0.41 billion yuan, a year-on-year decrease of 25.4%, after deducting non-net profit of 0.25 billion yuan, an increase of 138.6% year-on-year, and EPS of 0.28 yuan.

In the first three quarters, the company's net profit declined and non-net profit increased sharply, mainly due to a significant year-on-year decrease in investment income. Last year, investment income was high due to the transfer of shares of the company's domestic subsidiaries to foreign countries (investment income for the first three quarters of last year was 0.53 billion yuan, compared to 0.11 billion yuan in the first three quarters of this year).

Looking at a single quarter, 2024Q3 achieved revenue of 2.09 billion yuan, a year-on-year increase of 11.4%, and net profit to mother of 0.18 billion yuan, a year-on-year decrease of 35.7%. After deducting non-net profit of 0.15 billion yuan, the year-on-year loss was reversed. In addition, 2024Q1/Q2 company revenue was +23.5%/+24.3%, respectively, and net profit to mother was -4.5%/-19.3%, respectively. In terms of volume price, 2024Q3's sales volume increased by about 8% year on year, and it is estimated that the unit price increased by about 3% year on year.

Gross margin increased, expense ratio decreased, inventory and accounts receivable decreased, net operating cash flow increased gross profit margin: gross margin increased 0.6 PCT to 11.4% year-on-year in the first three quarters. On a quarterly basis, gross margin for the 24Q1 to Q3 single quarter was -7.4/-2.8/+10.5PCT to 5.9%/13.5%/14.0%, respectively, and gross margin showed a quarterly recovery trend.

Expense ratio: The cost ratio decreased by 1.3 PCT to 7.8% year on year during the first three quarters. Among them, sales/management/R&D/finance expenses were 0.6%/4.0%/1.4%/1.8%, respectively, and remained flat/-1.2/+0.1/-0.2 PCT year on year, respectively.

Expense rates for the 24Q1 to Q3 single quarter period were -2.1/+0.5/-2.4PCT, respectively. Among them, the decline in the 24Q3 period mainly contributed to the 2.4 PCT year-on-year decline in financial expenses due to exchange rate fluctuations.

Other financial indicators: 1) Inventory decreased by 12.1% to 4.14 billion yuan at the end of September '24 compared to the beginning of the year, a year-on-year decrease of 16.5%; the number of inventory turnover days was 222 days, a decrease of 84 days over the previous year. 2) Accounts receivable decreased by 4.0% to 0.59 billion yuan at the end of September '24 compared to the beginning of the year, a year-on-year decrease of 3.9%; the number of accounts receivable turnover days was 27 days, a decrease of 2 days year-on-year. 3) Net operating cash flow was 1.24 billion yuan in the first three quarters, up 98.8% year on year.

It is expected that the profitability of leading colored spinning companies will continue to recover, maintain double-digit growth in Q3 sales revenue for “buy” rating companies, and that gross margin will recover quarterly, after deducting impressive growth in non-net profit.

We continue to be optimistic that as a leader in color spinning, the company's profitability will gradually be restored, and the advantages of the international layout will be used to steadily increase market share. Considering the uncertainty of demand trends, we lowered the company's profit forecast for 24-26 (net profit reduced by 17%/17%/15% from the previous profit forecast, respectively). Based on the latest share capital, the corresponding EPS for 24-26 was 0.39/0.51/0.59 yuan, respectively, and the corresponding PE was 14/11/9 times, respectively, maintaining the “buy” rating.

Risk warning: Weak domestic and foreign demand affects order acceptance, changes in the trade environment affect order acceptance, and large fluctuations in exchange rates or cotton prices.