In the third quarter of 2024, the company's revenue increased year-on-year, and net profit to mother declined year-on-month. The company's revenue for the third quarter of 2024 was 50.54 billion yuan (+12% year over month, -1% month over month), net profit to mother was 2.92 billion yuan (-29% year over month, -27% month on month); gross sales margin/net margin was 13.4%/6.6%, down year on month; and the cost ratio for the period was 5.8%, which increased slightly from month to month. Revenue increased year-on-year in the third quarter, but net profit, gross profit margin, and net interest rate declined month-on-month, putting pressure on profits in the short term. In the first three quarters of 2024, the company completed technical reform and production expansion and put into operation new production capacity, and production and sales of major products achieved year-on-year growth. However, the prices of some main products declined year on year, but the prices of the main raw materials remained high. At the same time, the company's main installations in Yantai and Europe were undergoing centralized maintenance, leading to a year-on-year decline in profits in the third quarter.

The polyurethane sector's revenue and production and sales both increased year on year, and overall demand weakened. In the third quarter of 2024, the company's polyurethane segment generated revenue of 18.79 billion yuan (+8.5% YoY, +4.7% YoY), and the production/sales volume was 1.38/1.41 million tons (+16%/+14% YoY, -6%/+2% month-on-month). In the third quarter of 2024, overall downstream demand for polyurethane weakened, and prices of pure MDI, TDI and other products showed a downward trend. The average market prices for pure MDI/polymeric MDI/TDI/soft foam polyether in the third quarter were about 1.95/0.0178/0.0135/0.0087 million/ton, respectively. Among them, pure MDI faced weak demand, backlog of downstream finished products, and increased competition within the industry; aggregate MDI benefited from the promotion of refrigerator and freezer trade-in policies, which increased demand, compounded a slight recovery in demand in the construction market and the stability of the export market; TDI demand was weak, and stocks of raw materials and finished products in the home furnishing industry were high; and soft foam polyether products were affected by the year-on-year decline in demand in the home and automobile industries.

The petrochemical sector's revenue increased month-on-month, and sales declined month-on-month. In the third quarter of 2024, the company's petrochemical segment generated revenue of 22.4 billion yuan (+42.4% YoY, +6.4% YoY), and the production/sales volume was 1.3/1.32 million tons (-6%/-6% YoY). Affected by factors such as fluctuations in international crude oil prices and weak downstream demand for petrochemicals, the overall profit of the petrochemical industry is still at a relatively low level despite a slight recovery.

Production and sales in the fine chemicals and new materials sector increased year-on-year. In the third quarter of 2024, the company's fine chemicals and new materials segment generated revenue of 7.02 billion yuan (+10.9% YoY, +2.1% YoY), and the production/sales volume was 0.45/0.5 million tons (+15%/+16% YoY, -15%/+4% month-on-month). The first phase of the POE and citral projects have been put into operation, and the industrialization of emerging businesses such as flavors and fragrances is being promoted.

Risk warning: Project commissioning falls short of expectations; raw material prices rise; downstream demand falls short of expectations, etc.

Investment advice: As a leader in the polyurethane industry, the company has a solid profit guarantee, but due to adverse factors such as continued weakness in real estate demand, downstream demand for polyurethane fell slightly short of expectations, compounded by high costs, we carefully lowered the company's net profit forecast for 2024-2026 to 14.708/17.272/18.944 billion yuan (original value was 17.321/19.938/21.851 billion yuan). The corresponding EPS is 4.68/5.50/6.03 billion yuan, and the current stock price corresponds to PE 17.0/14.5/13.2 X, maintaining the “better than the market” rating.