Key points of investment

Incident: 2024Q1-3 achieved revenue of 2.231 billion yuan, +22.30% year-on-year, net profit of 0.195 billion yuan, +24.91% year-on-year, net profit of 0.186 billion yuan after deducting non-attributable net profit of 0.186 billion yuan, or +20.81% year-on-year.

2024Q1-3 revenue also increased 22%, and recycled plastic high-value terminal products accounted for more than 70% of receivables.

2024Q1-3 increased 22.30% year-on-year based on its high revenue base for the same period last year, mainly benefiting from the deep-built entire industry chain, strategic advantages of globalization, and terminal products and global channels that anchor the high-value use of renewable plastics. By product, 2024Q1-3 revenue from finished decorative products was 0.97 billion yuan (accounting for 43.49% of total revenue), 0.688 billion yuan for decorative building materials (accounting for 30.82% of total revenue), 0.306 billion yuan (accounting for 13.71% of total revenue), PET product revenue of 0.223 billion yuan (accounting for 10.01% of total revenue), and revenue of environmental protection equipment was 0.026 billion yuan (accounting for 1.17% of total revenue), of which recycled plastics were high Valuable terminal products account for more than 70% of revenue. 2024Q1-3 gross sales margin was 25.65%, -0.06pct year on year, net sales margin 8.72%, +0.18pct year on year.

Excluding the impact of 2024Q3 on foreign exchange, the same increase was 53%, and quarterly operating profitability continued to rise.

2024Q3's revenue in a single quarter was 0.797 billion yuan, +15.43% year over month, -0.57% month on month, and net profit to mother 0.039 billion yuan, +6.24% year over year, and -52.42% month on month. Earnings in the third quarter of a single fell month-on-month compared to the first and second quarters, mainly due to exchange losses due to the unilateral decline in the 24Q3 exchange rate against the RMB. 2024Q1-3 accumulated exchange losses of 39.9684 million yuan, of which the 24Q3 amount was 55.0404 million yuan. Excluding the impact of financial expenses such as exchange gains and loss and net income from interest, under a comparable scale, 2024Q3's net profit to mother was 0.082 billion yuan, +53.39% over the same period last year. The company's operating profitability in 2024 showed a trend of increasing month-on-quarter. Since entering the fourth quarter, the impact of exchange losses on the company's operating performance has gradually been eliminated as the exchange rate of the US dollar against the RMB gradually rose.

Net operating cash flow from 2024Q1-3 increased 34% over the same period. 2024Q1-3's net cash flow from operating activities was $0.249 billion, up 33.95%; net cash flow from investing activities was -0.514 billion yuan, compared to -0.164 billion yuan in the same period last year; net cash flow from fund-raising activities was -0.093 billion yuan, compared to 0.439 billion yuan in the same period last year.

The entire recycled plastics industry chain+global layout, mainly engaged in two high-quality circuits of recycled PS and PET, and expanded the categories vertically and horizontally. 1) Decorative building materials and three frames build competitive advantages for diversified products. At the end of 2023, the company had started production capacity of 0.1 million tons/year of recycled PS. Since 2023, the revenue share of high-value recycled plastic terminal products, represented by finished frames and decorative building materials, has remained 70% +, and the gross margin has stabilized at 30% +. Vietnam's Thanh Hoa Phase I was put into operation in June 2022, and the capacity utilization rate continued to increase. As of 24Q3, the Vietnam Yingke Thanh Hoa (Phase II) project was under construction. The company expanded its product range horizontally and invested in the “Comprehensive Utilization Project for New Modified Recycled Plastics with an Annual Output of 0.03 Million Tons”.

2) Cost reduction and production expansion of rPET production line are progressing simultaneously. rPET anchors the international trend of food grade homogenization. As of the end of 2024Q3, 0.05 million tons/year of recycled PET production capacity has been put into operation, and 0.1 million tons/year of recycled PET production capacity is under construction. The company promoted the construction of a bottle brick recycling system, the improvement of production processes, and the establishment of global marketing channels, etc., and the gross margin of the product gradually improved.

Profit forecast and investment rating: pioneer of recycled plastics, full industry chain & global layout, terminal products and global channels that anchor the high-value use of renewable plastics, and profitability is increasing every quarter.

We maintain our 2024-2026 net profit forecast of 0.261/0.322/0.379 billion yuan, corresponding to 21/17/14 times PE, and maintain a “buy” rating.

Risk warning: Project commissioning and progress fall short of expectations, trade policy changes, and the risk of additional tariffs.