Incidents:

On October 29, 2024, Shuangjian Co., Ltd. released its 2024 three-quarter report: in the first three quarters of 2024, the company achieved operating income of 1.934 billion yuan, +4.32% year over year; realized net profit of 0.14 billion yuan, or -13.77% year on year; realized net profit without return to mother of 0.135 billion yuan, or -14.54% year on year. Net cash flow from operating activities was 0.029 billion yuan, -86.57% year on year; gross sales margin was 18.48%, down 1.78 pct year on year; net sales margin was 7.21%, a decrease of 1.57 pct year on year.

With 2024Q3, the company achieved operating income of 0.66 billion yuan, +0.83% YoY, -9.63%; realized net profit attributable to mother 0.03 billion yuan, -50.40% YoY and -50.46% month-on-month; realized net profit without return to mother 0.027 billion yuan, or -53.28% YoY. Net cash flow from operating activities was -0.024 billion yuan, -126.09% year on month, -142.86% month on month; gross sales margin was 16.40%, down 6.56 pct year on year, down 2.57 pct month on month; net sales margin was 4.51%, down 4.73 pct year on year, and 3.71 pct month on month.

Investment highlights:

2024Q3's profit in a single quarter decreased month-on-month, and raw material prices rose 2024Q3. The company achieved net profit of 29.74 million yuan, a decrease of 30.26 million yuan, and 2024Q3 achieved gross profit of 0.108 billion yuan, a decrease of 30.32 million yuan over the previous month. In terms of expenses, 2024Q3 sales expenses were 24.54 million yuan, a decrease of 1.47 million yuan over the previous month; management expenses were 22.77 million yuan, A decrease of 3.69 million yuan compared to the same period; R&D expenses were 20.85 million yuan, a decrease of 3.82 million yuan from the previous month, financial expenses were 3.66 million yuan, and an increase of 5.25 million yuan over the previous year, mainly due to a decrease in interest income earned at maturity of current term deposits compared to the same period last year. 2024Q3's asset impairment losses were 3.75 million yuan, an increase of 3.32 million yuan over the previous month; credit impairment losses were 3.03 million yuan, a decrease of 1.28 million yuan over the previous month. According to Wind, the average price of natural rubber in China in Q3 was 14,811 yuan/ton, +21.47% year over year, and +5.77% month on month. The rise in raw materials had an impact on profits.

Production capacity is progressing steadily, and the commissioning of new projects will continue to contribute to the increase

As of the 2024 semi-annual report, the company's convertible debt project “15 million square meters of high-strength, energy-saving and environmentally friendly conveyor belt project” has been put into operation one after another. Zhejiang Taisheng Intelligent Transportation Technology Co., Ltd., a wholly-owned subsidiary, the first phase of the 30 million square meter production capacity of the “60 million square meter smart conveyor belt project” has been completed and will be put into production one after another. The second phase of 30 million square meters is expected to complete equipment installation by the end of 2024. Production capacity investment will further increase the company's conveyor belt production capacity, expand the company's size, and increase its market share.

Intelligent transformation helps the conveyor belt industry continue to expand. With the continuous development of manufacturing, logistics and mining, the conveyor belt industry market size continues to expand. In particular, driven by concepts such as intelligent manufacturing and smart logistics, the market demand for conveyor belts is growing steadily. The country has successively introduced corresponding laws, regulations and policies to encourage industrial enterprises to carry out intelligent transformation and accelerate the intelligent development of the mining industry. The 2025 National Action Plan clearly states to increase the level of intelligence in the industrial sector. With the continuous development and maturity of the industrial Internet, benefiting from the government's promotion of intelligent policies and the inherent demand of enterprises for intelligent technology to improve efficiency and reduce costs, the mining, steel, port, gravel aggregate and other industries that transport industrial bulk materials downstream are also facing the need for intelligent upgrading and transformation, which also provides a broad market space for the conveyor belt industry.

Profit forecast and investment rating According to industry sentiment, we adjust the company's profit forecast. We expect the company's 2024/2025/2026 operating income to be 26.8, 41.9, and 5.15 billion yuan, respectively, and net profit to mother of 0.181, 0.301, and 0.462 billion yuan respectively, corresponding to PE of 15, 9, and 6 times. Considering the company's strong long-term growth, we maintain a “buy” rating.

Risks indicate the risk of raw material price fluctuations; sea freight rates continue to rise; product demand falls short of expectations; downstream customers do not pay in a timely manner; and project construction progress falls short of expectations.