Jinhe Industrial announced its third quarter report on October 30th: Q3 revenue was 1.5 billion yuan, with a month on month increase of+6%/+14%, and net profit attributable to the parent company was 160 million yuan, with a month on month increase of+1%/+38%. In the first three quarters, the company achieved a revenue of 4 billion yuan, a year-on-year increase of -1%; The net profit attributable to the parent company was 410 million yuan (excluding 380 million yuan), a year-on-year decrease of -27% (excluding non recurring expenses of -22%).

The company's third quarter performance is basically in line with our forward-looking expectations (160 million yuan). Considering the support from both the demand and cost sides, the future sugar industry is expected to recover and maintain an "increase in holdings" rating.

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The sugar substitute industry has been affected by supply pressure and overseas destocking, resulting in a year-on-year decrease in product prices for the company

Since the beginning of this year, the pressure on the supply side of the industry has been compounded by overseas destocking, resulting in a year-on-year decrease in the prices of sugar substitute products. According to Baichuan Yingfu, the average prices of sucralose/acesulfame/methyl maltol/maltol ethyl enterprises in the first three quarters of 2024 were -31%/-28%/-8%/+3% to 12.3/3.7/8.3/69000 yuan/ton, respectively. Since the third quarter, the company has continued to raise prices due to cost pressures, among which the average price in the 24th quarter increased by+22%/-5%/+7%/+6% month on month to RMB 13.4/3.5/9.8/77000 per ton. The company's gross profit margin for the first three quarters of 24 years was -3.6pct to 20.2% year-on-year, and the gross profit margin for the third quarter of 24 years was -3.9pct to 19.5% year-on-year.

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The export volume of sucralose increased year-on-year in September, and the future prosperity of sugar substitutes is expected to recover

According to Baichuan Yingfu, the export volume of sucralose in September 2024 increased by+5%/-20% month on month to 1617 tons. As of October 30th, the prices of sucralose/acesulfame/methyl maltol/maltol ethyl for enterprises were 21.0/3.9/10.2/82000 yuan/ton, which was+100%/+11%/+7%/+9% respectively from the end of June this year. Under cost pressures, mainstream enterprises continued to raise prices for sucralose and maltol. We expect that with the recovery of downstream demand for sugar free beverages in China and the approaching end of overseas destocking, the sugar substitute industry is expected to recover in the future with the support of demand and cost.

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The project is progressing smoothly and plans to invest in the construction of a synthetic ammonia powder gasification replacement project

According to the third quarter report, the company's ongoing construction projects amounted to 300 million yuan as of the end of the 24th quarter. According to the company's announcement on October 30th, the company plans to invest in the construction of a 200000 ton per year synthetic ammonia powder gasification replacement project for outdated processes. The total investment of the project is 2 billion yuan, and the construction period is 24 months, which will help the company reduce production costs. According to the semi annual report of the 24th year, the company has completed the construction of the main projects of the "Dingyuan Phase II Project Phase I", including the annual production of 600000 tons of sulfuric acid, 60000 tons of ion membrane caustic soda, 60000 tons of ion membrane potassium hydroxide, 150000 tons of hydrogen peroxide and other main projects, and has gradually entered the trial production stage.

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Profit forecast and valuation

We predict that the company's net profit attributable to the parent company for the years 24-26 will be RMB 720/102/126 million, with a year-on-year increase of+2%/+43%/+23%, corresponding to an EPS of RMB 1.26/1.79/2.21. Comparable companies have a 25 year Wind consensus expected PE average of 10 times. Considering the company's technological advantages, leading position in the industry, and growth potential of ongoing projects, the company is given 14 times PE for 25 years with a target price of 25.06 yuan, maintaining an "increase in holdings" rating.