Key points of investment:

Event: Company Releases Third Quarter 2024 Report

The company released its report for the third quarter of 2024. In the first three quarters, the company achieved operating income of 10.857 billion yuan, +1.4% year over year, and realized net profit of 0.761 billion yuan to mother, +7.7% year over year. Among them, 24Q3 achieved revenue of 3.651 billion yuan, +1.9% year-on-month, and -0.1% month-on-month; net profit to mother of 0.213 billion yuan, -12.5% year-on-year and -21% month-on-month.

Demand for terminals was weak, and the company's Q3 revenue remained resilient

Two-piece cans: We expect the company's domestic two-piece can business to be under slight pressure in Q3, mainly due to a slowdown in terminal demand growth, and 24Q3 beer production will drop 5.3% year-on-year. The company has a production capacity of about 13.5 billion cans, which accounts for a relatively high revenue share. Therefore, against the backdrop of weakening downstream demand, we judge that the company's two-piece can sales will decline.

Three-piece cans: In terms of beverage cans, since the company has maintained good cooperative relationships with major customers for a long time and continues to enrich the customer structure, we expect the company's three-piece beverage cans to remain stable as a whole. In terms of food and innovative cans, the company has been paying attention to new consumption scenarios, new demands and changes in recent years, adhering to differentiated development, and the production volume of innovative cans has grown rapidly.

Demand pressure and raw material price fluctuations affect short-term profitability

The company's gross profit margin for the first three quarters was 17.3%, +1.22pct year on year, 6.95% net profit margin, +0.52 pct year on year.

Among them, 24Q3's gross profit margin was 16.27%, -0.08pct year on year, -1.12pct month-on-month, net profit margin 5.82%, year-on-year -0.76pct, and -1.45pct month-on-month. The company's profitability declined in Q3, mainly due to weak market demand and stronger aluminum prices. The price of aluminum, the main raw material for two-piece cans, continued to rise in August-September. As of the end of September, the price of A00 aluminum ingots was close to 0.02 million/ton. In terms of the period expense ratio, the 24Q3 company had an expense ratio of 8.3%, of which the sales expense ratio was 1.88%, and the year-on-year +0.38pct. We judge that it was mainly due to the company's continuous increase in customer and market expansion. The management fee ratio was 4.4%, +0.29pct, R&D expense ratio 0.34%, +0.03pct year on year, and the financial cost ratio was 1.68%, and -0.35pct year on year.

Profit forecasting and investment advice

We expect the company's revenue growth in 2024-2026 to be 7.8%, 7.5%, and 8.2%, respectively. Net profit to mother is 18.9%, 16.5%, and 14.9% (previous value 18.9%, 12.8%, 14.3%), and corresponding EPS is 0.36 yuan, 0.42 yuan, and 0.48 yuan (previous value 0.36 yuan, 0.40 yuan, 0.46 yuan), respectively.

The current stock price is 15X corresponding to 2024 PE. We believe that as a leader in the metal packaging industry, if the company successfully acquires COFCO Packaging in the future, we believe that the two-piece can industry pattern will further improve and drive the industry's profit recovery. As a leading enterprise, the company is expected to take the lead in benefiting and maintaining a “buy” rating.

Risk warning

Industry consolidation falls short of expectations, risk of sharp rise in raw material prices, risk of downstream demand falling short of expectations, and high risk of customer concentration.