3Q26 results in line with our expectations

The company announced its 1–3Q26 results. Revenue reached Rmb18.05bn, up 13.4% YoY; attributable net profit rose 40.28% YoY to Rmb696mn; recurring attributable net profit rose 81.32% YoY to Rmb652mn. In 3Q26 alone, revenue reached about Rmb6.41bn, up 19.39% YoY; attributable net profit was Rmb258mn, up 23.81% YoY. The 3Q26 results were in line with our expectations.

1) Newly signed orders and output continued to grow steadily. For 1–3Q26, the company's cumulative output and newly signed orders grew 16.7% and 9.7% YoY to 4.21mn tonnes and Rmb24.43bn. In 3Q26, steel structure output rose 21.2% YoY to 1.51mn tonnes. Newly signed steel structure material orders rose 4.9% YoY to Rmb8.27bn. Market demand continued to grow, further highlighting the company's competitive advantages.

2) Profitability improved. The 3Q26 GM rose 0.43ppt YoY to 11.6%. We estimate that gross profit per tonne of steel structure reached Rmb491/t in 3Q26, up Rmb11 YoY. Recurring net profit per tonne reached Rmb163/t, up Rmb66 YoY. Core profitability continued to strengthen.

3) Economies of scale diluted expenses. The company's combined expense ratio for four major items came to 5.6% in 3Q26, down 1.5ppt YoY. Excluding financial costs, the other three expense items all declined in absolute terms.

4) Cash flow continued to improve. The company recorded a net operating cash inflow of Rmb893mn in 3Q26, up 55% YoY and 29% QoQ, reflecting strong cash collection.

Trends to watch

Intelligent upgrades unlock the growth ceiling; profitability is rising steadily. In 3Q26, the company's output and orders grew further, while profitability continued to improve. Average monthly output remained at 0.5mn tonnes, translating to an annualized capacity utilization rate of 115%. We believe full-year steel structure output could exceed 5.50mn tonnes.

Furthermore, as R&D investment intensity declines marginally, depreciation and amortization should continue to ease their impact on costs. Net profit per tonne still has room to rise. On the demand side, we believe demand for industrial plants, driven by high-end manufacturing, still has substantial room to grow. We are upbeat on the company's market-share gains and strong competitiveness as an industry leader.

Financials and valuation

We maintain our earnings forecasts and forecast attributable net profits of Rmb812mn and Rmb972mn for 2026 and 2027. The stock is trading at 19.1x 2026e and 16.0x 2027e P/E. The company continues to see tangible results from its intelligent transformation and upgrades. We maintain an OUTPERFORM rating and a TP of Rmb26.0, implying 24.2x 2026e and 20.2x 2027e P/E, and offering 26.3% upside.

Risks

Sharp fluctuations in steel prices; disappointing improvement in per-tonne profit; weaker-than-expected demand growth.