Jiangsu Shentong released its three-quarter report: Q3 achieved revenue of 0.582 billion yuan (yoy +6.95%, qoq +20.73%) and net profit of 84.2139 million yuan (yoy +10.56%, qoq +40.54%). Q1-Q3 2024 achieved revenue of 1.634 billion yuan (yoy +5.87%), net profit to mother of 0.228 billion yuan (yoy +13.03%), deducting non-net profit of 0.206 billion yuan (yoy +15.53%). The company's overall profit has maintained steady growth, and the nuclear power sector still has strong growth potential in the future, maintaining a “buy” rating.

Q3 continues the good growth trend in the first half of the year, and we expect the revenue of nuclear valve delivery companies to achieve steady growth in the third quarter. We speculate that all sectors maintained a good trend of growth in the first half of the year. Among them, deliveries of nuclear power valves accelerated in the second half of the year, while metallurgical valves remained stable.

Five nuclear power projects, including Xu Wei Phase I, were approved by the state in August '24. Shentong Nuclear Energy obtained an order of 0.504 billion yuan in the first half of the year, +92% over the same period, and is expected to contribute incremental revenue in the future.

Profitability improved slightly and R&D investment increased

In the Q3 quarter, the company achieved gross profit margin and net profit margin of 33.26% and 14.46%, compared with +2.83 and +0.45pct, respectively. The increase in gross margin was mainly affected by changes in product structure, and overall profitability improved slightly.

24Q3's sales/management/R&D/finance expense ratios were 4.32%, 5.2%, 5.84% and 1.12%, respectively, -0.55/+0.97/+2.3/-0.39pct, respectively. Among them, the increase in R&D cost ratio is mainly due to an increase in R&D investment by the wholly-owned subsidiary Shentong Nuclear Energy. The sales and management cost ratio fluctuated slightly in Q3, but the overall sales and management expense ratio remained stable in the first three quarters. The company's asset impairment losses in the first three quarters were +49% year-on-year, mainly due to an increase in preparation for nuclear energy equipment inventory price reduction over the same period, and other income increased 62% over the same period, mainly due to input tax deductions.

Profit forecasting and valuation

Maintaining the previous profit forecast, the company's net profit for 2024-2026 is estimated to be 0.318 billion yuan, 0.39 billion yuan, and 0.465 billion yuan, respectively, corresponding to PE 21, 17, and 14x. Comparable to the 2025 Wind, the average PE is expected to be 17 times. Considering the company's potential growth potential in military and semiconductor valves, the company was given 22 times PE in 25 years, with a target price of 16.7 yuan (previous value 13.9 yuan) to maintain a “purchase”.

Risk warning: 1) The competitive landscape of the industry has increased beyond expectations; 2) Prices of raw materials have risen sharply; 3) Demand for nuclear power/metallurgy falls short of expectations.