Incidents. The company released its 2024 three-quarter report: 24Q1-3 achieved total operating income of 19.069 billion yuan, +19.5% year on year, net profit of 4.746 billion yuan, +24.5% year on year; of these, the 24Q3 single quarter company achieved total operating income of 5.263 billion yuan, +13.4% year on year, and net profit of 1.174 billion yuan, year on year.

Growth momentum continues, and management resilience is strong. 24Q3's revenue grew steadily, +13.4% to 5.263 billion yuan over the same period, and the growth rate was among the highest in the industry. We think it may benefit from the good performance of products such as Gu 7, Gu 8, and Gu 16. The company is concentrating on strengthening the provincial market, and the revenue resilience of the base market is prominent; it continues to make efforts to expand nationally, and markets outside the province promote healthy channel development.

The structure dragged down gross profit margins, and the cash flow performance was impressive. The 24Q3 company's gross margin was -1.55pct year-on-year to 77.9%. We think it may be dragged down by the product structure. The company's cash flow performance was impressive. The net sales payback/operating cash flow in 24Q3 was +24.6%/+34.6% year-on-year to 5.46/1.334 billion yuan, respectively; the net contract debt decreased by 0.283 billion yuan to 1.936 billion yuan month-on-month.

Expenses are well controlled, and taxes disrupt profits. In 24Q3, the company's sales expenses ratio was -5.32pct to 23.0% year over year. We think it may be related to the company strengthening detailed cost management and improving delivery accuracy; the gross sales margin was +3.76pct to 54.9% year over year; and the management expenses ratio was -0.14pct to 6.1% year over year. Quarterly tax fluctuations dragged down profits. 24Q3 tax and additional/actual income tax rates were +2.40pct/+1.47pct to 17.2%/27.6% year over year; the company's net interest rates attributable to mother/ +0.22pct were +0.05pct/+0.22pct to 22.3%/22.0% year over year, respectively.

Profit forecasting and investment advice. We expect the company's 2024-2026 EPS to be 10.89, 12.69, and 14.35 yuan/share, respectively. Referring to comparable company valuations, the company was given 20-25 times P/E in 2024, with a corresponding reasonable value range of 217.84-272.30 yuan, maintaining a “superior to the market” rating.

Risk warning. Expansion outside the province fell short of expectations, and industry competition intensified.