Incident: The company recently released its 2024 three-quarter report. In the first three quarters, it achieved operating income of 7.14 billion yuan, +16.1% year over year; net profit to mother of 1.045 billion yuan, -5.7% year over year. Net profit attributable to mother after deducting investment income from joint ventures was 0.975 billion yuan, +52.3% year over year. Looking at the third quarter of a single quarter, the company achieved operating income of 2.31 billion yuan (-3.2%), realized net profit of 0.401 billion yuan (+1.3%), and net profit to mother after deducting investment income from joint ventures was 0.386 billion yuan, +22.6% over the same period last year. On a month-on-month basis, the revenue change for the third quarter compared to the previous quarter was -5.3%, and net profit to mother was +26.9%.

After deducting investment income from joint ventures, net profit and gross margin both increased markedly month-on-month, demonstrating progress in strengthening the moat and high-end technology. While 24Q3 revenue fell slightly by 3.2% month-on-month, the company's gross margin reached 31.2%, up 8.3 PCT month-on-month, indicating that the company's high-end strategy continues to advance. The company has always been deeply involved in its main business, continuously optimizes the product structure and layout, and strives to maintain a leading position in fierce market competition. In particular, it has shown a forward-looking strategic vision in the field of high-end stainless steel pipes, actively lays out emerging markets, and seizes opportunities for the future development of the industry. The company has further increased R&D investment and marketing efforts for products with high added value and high technology content. Taking 24H1 as an example, such products accounted for 22% of revenue from high-end equipment manufacturing and new materials, or +40% over the same period last year.

The R&D cost rate continues to rise, and both quality and return are increasing. In 24Q3, the company's R&D expenditure rate reached 4.38%, increasing 0.21PCT and 0.39PCT year-on-year, respectively. In September 2024, the company formulated the “Double Improvement of Quality and Return” action plan, which will further increase investment in scientific and technological innovation, ensure that the annual growth rate of R&D expenses is not lower than the industry average, and focus on R&D of high-end products, optimization of production processes, and exploration of new materials and technologies. Take the initiative to raise the dividend level and implement a steady dividend mechanism to give back to investors. On October 14, 2024, the company issued an announcement announcing the repurchase of company shares not less than RMB 0.15 billion and no more than RMB 0.3 billion with its own capital or self-financing, highlighting the company's confidence in future sustainable development and recognition of the company's value.

Due to the continued development of the company's high-end products, the acquisition of German EBK in 23, and the decline in the company's investment income, we forecast that the company's earnings per share for 24-26 will reach 1.42, 1.67, and 1.84 yuan, respectively (the original 24-25 earnings per share forecast values were 1.46 and 1.56 yuan). The valuation is based on the DCF method, and the target price is 26.99 yuan.

Risk warning

There is a risk that the progress of the fund-raising project falls short of expectations, the risk of product upgrades falling short of expectations, the risk of macroeconomic growth slowing down, and large fluctuations in energy prices.