Event: Zhongfu Shenying released its 2024 third quarter report. The company achieved revenue of 1.119 billion yuan in the first three quarters, a year-on-year decrease of 30.46%, with a cumulative loss of 8.34 million yuan, compared with a profit of 293 million yuan in the same period last year, of which the amount of non-recurring profits and losses such as government subsidies was 66.75 million yuan, compared with 30.36 million yuan in the same period last year, and the loss in the first three quarters after deducting non-profits was 75.09 million yuan, and the loss was +263 million yuan in the same period last year. In a single quarter, the company's revenue in Q3 was 386 million yuan, a year-on-year decrease of 30.09%, with a loss of 33.31 million yuan, a profit of 72.16 million yuan in the same period last year, and a loss of 56.64 million yuan in the current period after deducting non-profits, and a profit of 65.04 million yuan in the same period last year.

Q3 volume increase and price reduction continued to deduce, and profitability was under pressure in stages. Month-on-month, the company's Q3 revenue increased by 36.16%, speculating that the main contribution comes from the continuous growth of sales, according to Baichuan Yingfu, Q3 carbon fiber industry product prices continue to decline, in early August T300-12K, T300-24/25K, T300-48/50K product average sales price fell 5000 yuan/ton, T700-12K price fell 10000 yuan/ton, T700 as one of the main products of Zhongfu Shenying, it is expected that the average sales price of Q3 company will continue to be under pressure.

Q3 The company's net profit attributable to the parent company decreased by 98.14% month-on-month. In terms of gross profit margin, the gross profit margin of the company in Q3 alone was 11.57%, a year-on-year decrease of 20.55pct and 8.7pct respectively, and the gross profit margin has continued to decline since the beginning of the year, mainly affected by the continuous price reduction of products. In terms of expense ratio, the company's expense rate during the single Q3 period was 25.69%, an increase of 6.92pct year-on-year, mainly due to the weakening of the cost dilution effect after the shrinkage of the revenue scale, of which the sales, management and financial expense rates increased by 0.94pct, 4.41pct and 2.84pct year-on-year respectively, and the R&D expense rate decreased by 1.27pct year-on-year. The overall expense ratio decreased by 6.31 pct sequentially. The corresponding sales net profit margin in the same period was -8.62%, compared with 13.05% in the same period last year, and the net profit margin fell further than that in Q2.

The industry is under pressure, and the company is polishing its internal strength. At present, the supply and demand fundamentals of the carbon fiber industry are still weak, the oversupply is deep, and the demand growth rate is not as expected. In the face of the sluggish external environment, the company continues to seek high-quality development inward, and the specific measures are reflected in three aspects: first, to achieve continuous cost reduction through refined management and build deep core competitiveness, the second is to develop high-end product series, such as high modulus, aerospace special prepregs, etc., to raise the profit center, and the third is to continuously expand the coverage of the application market, the company's sales in the field of wind power increased significantly in the first half of the year, in addition, the company actively explores applications that are expected to bring higher product added value, such as electronic 3C (folding screen mobile phone, notebook computers, etc.), exports (especially for the European market), and aerospace (large aircraft, etc.).

Profit forecast: Zhongfu Shenying is one of the leading domestic high-performance carbon fiber enterprises, fully grasps the key competitive factors such as scale and cost, and has a stable head position. Considering that the downward trend of the carbon fiber cycle has not yet ended, we have lowered the company's earnings forecast, and it is expected that the company's net profit attributable to the parent company in 2024-2026 will be -40 million, -02 million, and 88 million respectively, maintaining a "buy" rating.

Risk warning: the risk of large fluctuations in raw material prices; the risk that the release of downstream demand is less than expected; Market competition intensifies the risk.