Bunny announced third-quarter results: revenue of 2.556 billion yuan (yoy +3.56%, qoq +5.39%) and net profit of 0.238 billion yuan (yoy +41.50%, qoq +53.17%). In the first three quarters, the company achieved revenue of 6.464 billion yuan (yoy +12.79%) and net profit of 0.482 billion yuan (yoy +5.55%) to mother. The company's net profit for the third quarter exceeded our expectations (0.17 billion yuan). We speculate that the main reason was the year-on-year decrease in equity incentive fees, which led to a significant drop in management expenses, which led to profit recovery. With the recent introduction of a package of incremental policies, we expect building materials retail to continue to benefit in the future. Maintain a “buy” rating.

3Q24 gross margin is relatively stable in the same cycle, and management rates are well controlled

The gross profit margin for the first three quarters of 24 was 17.31%, -1.54 pct year on year, 17.07% in 3Q24, and +0.21/-0.15 pct month-on-month. The 24Q3 single quarter cost rate was 5.97%, or 0.69pct, of which the sales/management/ R&D/ finance ratio was 3.42%/2.20%/0.68%/-0.34%, and +0.11pct/-0.60pct/-0.02pct/-0.18pct. Among them, the management rate decreased a lot year over year. The cumulative absolute value for the first three quarters decreased by about 0.05 billion yuan year on year, or mainly due to the year-on-year decrease in equity incentive expenses.

Net interest rate increased month-on-month in 3Q24, and the increase in single-quarter payments led to a year-on-year decline in operating cash flow of 7.46% in the first three quarters of 24, or -0.51 pct year on year; 3Q24 was 9.32%, +2.5/+2.91 pct month-on-month. The company's balance ratio/interest-bearing debt ratio at the end of 24Q3 was 45.7%/1.0%, -1.4/-1.6pct year-on-year. Net operating cash flow for the first three quarters of 24 was 0.42 billion yuan, or -52% year-on-year, mainly due to a year-on-year increase in cash purchased for goods and services in the current period. The 3Q24 cash/cash ratio was 99.9%/101.2%, respectively, -2.0/+10.0pct year-on-year, and -1.6/+46.1 pct month-on-month.

Actively promote the recovery of workers' housing, and rolling account aging led to an increase in credit impairment and an increase of 0.067 billion yuan in other non-current assets compared to the beginning of the year. The main reason was the increase in the amount paid by the subsidiary Yufeng Hantang. As of the end of the third quarter, the net book value of accounts receivable was $0.93 billion, -19.2% YoY, and the turnover ratio was 6.27. According to the notes in the company's semi-annual report, as of the end of 1H24, the net book value of accounts receivable prepared by the company according to individual deductions was 0.102 billion yuan. The credit impairment exposure of high-risk customers was limited, but the absolute value of cumulative credit impairment losses increased by 0.049 billion yuan year-on-year in the first three quarters. We expect that the main reason is the upward shift in the account aging center, which will drive an increase in combined impairment preparations, and the market still requires careful attention in the future.

Profit forecasting and valuation

Considering that the company's cost control was better than our previous expectations, and revenue continued to grow steadily against the trend against the backdrop of pressure on real estate completion performance, we raised the company's 24-26 EPS to 0.80/0.93/1.07 yuan (previous value 0.75/0.87/0.99 yuan), to -3.2%/+16.0%/+15.3%, respectively. Considering that the company continues to prove its retail brand strength, the building materials retail side may continue to benefit under a package of incremental policies, and the company was given a 25-year 15x PE valuation (comparable company was 13x). The corresponding target price was 13.96 yuan (previous value of 11.32 yuan).

Risk warning: Prices of raw materials are rising rapidly; competition in the industry is worsening; accounts receivable are greatly reduced in value.