Key investment points

Event: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 3.773 billion yuan, +0.71% year-on-year; net profit to mother was 0.624 billion yuan, -28.64% year-on-year. Among them, Q3 achieved revenue of 1.43 billion yuan, or -5.24% year on year; net profit to mother of 0.284 billion yuan, or -25.27% year over year.

Quarterly revenue is under pressure, and the retail PPR pipeline is expected to remain strong. Industry demand pressure increased in the third quarter. The company's Q3 revenue fell 5.24% year on year. The PPR business performance, which is mainly retail, is expected to be relatively steady, while revenue pressure on related products has increased due to the decline in municipal and construction engineering demand. Furthermore, the acquired Zhejiang Kerui Company also had an impact on the company's revenue side for the first three quarters (it began to be included in the company's consolidated statements in October 2023).

The gross margin remained steady, and the sales expense ratio increased. The gross margin of 2024Q1-Q3 sales was 41.48%/42.58%/43.11%, respectively, with year-on-year changes of +4.3pct/-1.24pct/-4.9pct. The gross margin in the third quarter decreased a lot year-on-year. It is expected to be affected by overall industry price competition pressure. The gross margin of retail PPR pipelines is expected to be relatively stable, and the gross margin of PVC products will have a significant impact. In terms of the cost ratio during the period, 2024Q3's management expenses and R&D expenses remained stable. The sales expenses rate increased by 2% compared to the previous year. The increase was mainly affected by Zhejiang Kerui's consolidation, and overall cost control was steady.

The company's investment income for the first three quarters of 2024 was -2.16 million yuan, compared to 0.14 billion yuan in the same period last year.

Operating cash flow has remained good. The company's net cash flow from operating activities in the first three quarters of 2024 was 0.812 billion yuan, a slight improvement over the previous year. The net operating cash flow inflow for Q3 was 0.52 billion yuan, an increase of 31% over the previous year. The company continued to maintain a high quality of operation under pressure from demand and profits.

Profit forecasting and investment rating: The company continues to implement the “two-wheel drive” strategy, strengthen channel sinking, empty market expansion and concentric product expansion on the retail side, steadily expand the engineering business, expand incremental markets in real estate, municipal and other fields while ensuring business quality. Considering the high pressure on the completion side in the second half of the year, we lowered the company's 2024-2026 net profit forecast to 1.107/1.281/1.441 billion yuan (previous value was 1.351/1.522/1.712 billion yuan), and PE corresponding to the closing price on October 31 was 21X/19X/16X, respectively. Considering the company's excellent operating quality, we maintained a “buy” rating.

Risk warning: the risk of a macroeconomic downturn; the risk of large fluctuations in raw material prices; the risk of increased competition; the risk of developing new businesses falling short of expectations.