Event: in the first three quarters of 2023, the company realized operating income of 6.241 billion yuan (+ 4.77%), net profit of 82 million yuan (- 69.44%), net profit of 8 million yuan (- 95.73%), of which Q3 realized revenue of 1.904 billion yuan (+ 4.86%), net profit of 21 million yuan (- 9.96%) and net profit of-46 million yuan (- 2506.71%).

The impairment provision in the third quarter affects the current performance, and the gross profit margin has improved from the previous month. The company's Q1-Q3 revenue growth rate was 7.59%, 2.67% and 4.86% respectively, and the growth rate of homed net profit was-41.37%,-98.26% and-9.96% respectively. Q3 revenue and performance improved, but the absolute value of profit was still low, mainly in the third quarter, especially in July-August, real estate sales and other data are still weighing on industry demand. On the other hand, the impairment of company Q3 affects the current performance. The impairment of assets and credit of 23Q3 company is about 141 million yuan. In terms of gross profit margin, the gross profit margin of the company in the first three quarters is about 21.19%, which is basically the same as the same period last year. Q3 gross profit margin is 21.35%, which increases 0.59pct and 2.37pct compared with the same period last year. The improvement in gross profit margin is mainly due to a significant decline in the price of raw materials such as asphalt compared with the same period last year. Taking the price of repaid asphalt in Shandong as an example, the average price of Q3 is about 3794 yuan / ton, down about 13% from the same period last year, and rising by about 2.4% compared with the previous year. Asphalt accounts for about 20-30% of the cost of waterproof materials, and the decline in raw material prices is conducive to the company's gross profit margin repair.

In the first three quarters, operating net cash flow is still under pressure, with Q3 income-to-cash ratio reaching 1.07x. In the first three quarters of 2023, the net operating cash flow of the company was-848 million yuan, which was 138 million yuan more than the same period last year, of which the net outflow of Q3 was 94 million yuan, compared with 31 million yuan in the same period last year. The real estate repayment conditions did not significantly improve in the first three quarters, and the cash flow pressure still existed; the cash flow pressure still exists; the cash-to-cash ratio of 23Q3 Company is 1.07x, which is 0.18x higher than the same period last year. At the end of the third quarter of 2023, the company's accounts receivable and bills receivable fell 5.47% from the same period last year, lower than the revenue growth rate in the same period, while other receivables were 459 million yuan, an increase of 172 million yuan over the beginning of the year.

At the end of 2023Q3, the company's book currency capital was 2.914 billion yuan, and the asset-liability ratio was 61.79%, an increase of 6.24 pct over the beginning of the year.

The 23Q3 credit impairment is about 134 million yuan, and the period expense rate is about 16.87%. The credit impairment of the company in the first three quarters is about 289 million yuan, of which the impairment of Q3 is about 134 million yuan, mainly due to the impairment of accounts receivable according to the age of the account. With the increase of the operating pressure of housing enterprises, the company's tolerance for the account period decreases, strengthen the recovery of accounts receivable, reduce the risk of bad debts, and unload the burden light. The expense rate of Q3 company during the period was 16.87%, which decreased by about 0.61 pct compared with the same period last year, of which the sales expense rate increased by about 2 pct compared with the same period last year. This is mainly due to the increase in company travel expenses after the epidemic, the company's increased efforts to expand the home improvement market, the increase in investment in brands and channels, and the relatively stable management expense rate.

2.198 billion convertible bonds hit the ground, contributing to a new round of growth. The 2.198 billion plan for the company to issue convertible bonds has been approved by the Securities Regulatory Commission, and has been successfully issued and listed. The funds raised are mainly used for the expansion of the production base, the original factory intelligent transformation project and some supplementary liquidity. We believe that the smooth placement of investment funds will, on the one hand, provide financial guarantee for the company's future capital increase and production expansion, and at the same time effectively improve the company's production efficiency, reduce manufacturing costs, and meet the concept of green development. and timely alleviate the capital needs brought about by the rapid development of the company's business. This refinancing will serve as an opportunity for the company to set sail again, consolidate and expand the company's leading position and influence in the field of waterproof materials, and lay a solid foundation for the realization of the company's long-term planning. In addition, the company plans to buy back 5000-100 million yuan of company shares again for equity incentives or convertible debt-to-equity swaps, so as to safeguard the interests of the broad masses of investors and enhance investor confidence

Investment suggestion: taking into account the demand pressure caused by the current real estate bottom and the impact of the company's impairment provision on the performance, we adjust the company's return net profit in 2023-2025 to 3,6.2 and 910 million yuan respectively, corresponding to EPS 0.25,0.53 and 0.78 yuan respectively, and the corresponding PE valuation is 25.7,12.5 and 8.4 times respectively; maintain the "buy" rating.

Risk tips: real estate investment has fallen sharply, the landing progress of new industry regulations has been lower than expected, raw material prices have risen sharply more than expected, and the withdrawal progress of backward production capacity has been lower than expected.