Yuma Sun-Shading posted a YoY decline of 2.3% in attributable net profit (ANP) for 3Q23, partly resulting from the high base of exchange gains in 3Q22. We estimate that excluding the influence of financial income, its ANP grew by 17.8% YoY. In 3Q23, the Company maintained rapid growth in revenue, which rose by 18.8% YoY and stayed basically flat QoQ. Driven by product structure optimization and other factors, its gross profit margin (GPM) reached 43.0% in 3Q23, up QoQ and turning positive YoY. Therefore, we reiterate the "BUY" rating.

Event: Yuma announced its 3Q23 results.

For 9M23, the Company posted revenue/ANP/recurring ANP of Rmb477mn/120mn/116mn (+18.81%/+0.75%/-0.64% YoY), respectively. In 3Q23 alone, its revenue/ANP/recurring ANP came in at　Rmb173mn/47mn/46mn (+18.83%/-2.33%/-3.57% YoY), respectively.

Revenue: Continuing rapid growth in 3Q23.

Yuma's 3Q23 revenue leveled that of the previous quarter and increased by 18.8% YoY, maintaining rapid growth and the trend of recovery. Structurally, we expect that the Company still achieved rapid growth in domestic sales revenue, driven by the surging shipment of its new products, and steady growth in export revenue in 3Q23, as what happened in 1H23.

GPM: Increasing QoQ and turning positive YoY in 3Q23, partly driven by product structure optimization.

In 3Q23, Yuma delivered a GPM of 43.0%, up by 2.8ppts QoQ and by 0.6ppts (turning positive) YoY. We believe that the growth was mainly thanks to the Company's efforts in optimizing product structure and improving the sales of higher-margin products, the appreciation of US$ against RMB, the gradual increased GPM of new products driven by the expansion of sales scale and export share, and the optimization on the production side.

Expense ratios: 3Q23 ratios higher from a year ago, mainly due to the higher exchange gains in the same period of last year.

In 3Q23, Yuma saw its selling/administrative/R&D/financial expense ratios change by +0.8ppts/-0.4ppts/+0.1ppt/+6.3ppts YoY, respectively. The YoY increase in selling expense ratio was largely because the Company attended more exhibitions and made more exchanges with potential customers this year. The YoY growth in financial expense ratio was mostly due to the higher exchange gains in the same period of last year: The financial income declined to Rmb2mn in 3Q23 from Rmb10.89mn in 3Q22. We estimate that excluding the influence of financial income, the Company's 3Q23 ANP growth stood at 17.8%.

Potential risks:

Demand recovery and customer base expansion missing expectations; a growing trend towards consumption degradation; great appreciation of RMB against US$; and lower-than-expected GPM of the Company's new products.

Earnings forecast, valuation and rating:

Amid recovering demand, Yuma has achieved recovery in both domestic and　export sales by actively participating in exhibitions, calling potential customers and promoting new products at home and abroad. Its new products with temporarily low GPM are likely to gradually generate increasing GPM with the maturity of production, the expansion of scale and the increase of export share, thus driving the overall GPM to gradually pick up. Considering the Company's revenue growth and GPM recovery in 3Q23, we slightly adjust our 2023E/24E/25E earnings forecast to Rmb169mn/198mn/231mn (from Rmb167mn/198mn/242mn). With the Company's PE-NTM pivot of 21x for 2021 and 16x from 2022 to date (Wind consensus estimates) as references, and given the recovery in industry prosperity from 2022, we assign 20x 2024E PE to derive a target price of Rmb13, and reiterate the "BUY" rating.