Incidents:
The company released its 2022 annual report. In 2022, it achieved operating income of 24.856 billion yuan, a year-on-year decrease of 7.69%; net profit of 551 million yuan, a year-on-year decrease of 34.82%; after deducting net profit of non-return mother of 479 million yuan, a year-on-year decrease of 36.20%.
Q4 2022 achieved revenue of 6.652 billion yuan in a single quarter, a year-on-year decrease of 11.72%; net profit of 28 million yuan, a year-on-year decrease of 109.61%; net profit after deducting net profit of -41 million yuan, a year-on-year decrease of 118.49%.
Falling demand put pressure on performance, and mixed contract volume bucked the trend
In 2022, the company's commercial concrete sales volume was 56.0193 million square meters, down 8.24% from the previous year; on a quarterly basis, the 2022 Q1-Q4 mixed sales volume was 998.42/1632.60/1491.84/147.218 million square meters, down 11.13%/4.76%/10.51%/8.03%, respectively. The decline in the company's performance was mainly due to the bottoming out of real estate fundamentals in 2022, which was compounded by the decline in newly started area, compounded by the impact of the epidemic on infrastructure project construction projects. Demand for mixed housing and infrastructure terminals was weak. In 2022, the number of corporate mixed contracts signed was 128 million square meters, an increase of 7.30% over the previous year; the amount of new contracts signed was 58.270 billion yuan, an increase of 9.39% over the previous year. In 2022 Q4, the number of corporate mixed contracts signed was 31,7391 million square meters, an increase of 103.45% over the previous year; among them, the number of major projects (mixed contracts of more than 100,000 square meters) signed was 10.219,900 square meters, accounting for 32.20% of the total number of contracts signed. In terms of customer structure, the company's largest customer is China Construction Group Co., Ltd., the actual controller, and its affiliated companies. The company's sales amount for 2022 was 12.264 billion yuan, accounting for 49.34% of total sales.
Looking at 2023, infrastructure investment continues to soar, and the resumption of major projects is speeding up; real estate sales are picking up, boosting market confidence, and improvements in new real estate starts can be expected; mixed demand is expected to gradually recover. In January-February 2023, the amount of new contracts signed by China Construction was 567.6 billion yuan, an increase of 30.2% over the previous year. Among them, the amount of new contracts signed for housing construction/infrastructure/survey and design was 4268/1389/19 billion yuan respectively, up 20.4%/55.1%/3.7%, respectively. The number of new contracts signed by China Construction confirms that downstream engineering projects are thriving, and the company's performance is expected to be supported.
Gross margin remained steady, and the pay-to-cash ratio increased
In 2022, the company's gross margins of sales/net profit margin were 10.51%/2.88% respectively, +0.07/-0.77 pct, respectively. Looking at unilateral indicators, the company's average mixed sales price in 2022 was 433.26 yuan/square meter, an increase of 3.72 yuan/square meter; the one-sided cost was 388.37 yuan/square meter, an increase of 3.31 yuan/square meter over the previous year; among them, single direct materials/direct manual/machinery, power/manufacturing costs/others were 291.15/8.64/61.10/19.60/7.88 yuan/square meter, respectively -2.90/+0.71/1.71/+0.80/+2.99 yuan/square meter; one-sided gross profit was 44.89 yuan/square meter, respectively Square, an increase of 0.40 yuan/square meter over the previous year. During the pressure period of weak industry demand and declining revenue, the company's profit level remained steady, and its resilience was highlighted; subsequent cooperation between the company and Conch Cement, a strategic investor to be introduced, in the procurement of raw materials, etc. is expected to boost the company's profit level. In 2022, the company's net operating cash flow was 309 million yuan, a year-on-year decrease of 95 million yuan; the pay-to-cash ratio was 66.73%, an increase of 6.32 pct over the previous year. In 2022 Q4, the company's net operating cash flow was 2,738 million yuan, an increase of 578 million yuan over the previous year; the pay-to-cash ratio was 118.97%, an increase of 0.24 pct over the previous year.
In terms of cost rate, in 2022, the company's expenses rate for the period was 5.74%, an increase of 0.62 pct over the previous year; among them, the sales/management/R&D/finance expense ratio was 0.90%/2.06%/2.43%/0.35%, respectively, up 0.07/0.26/0.15/0.14 pct over the previous year. In 2022, the company's balance ratio was 68.68%, an increase of 6.85 pct over the previous year. On 2023/4/8, the company announced that it plans to apply for a total financing of 13 billion yuan in credit from China Construction Finance Company, which is expected to ease the pressure on the company's capital and optimize financial expenses.
Profit Forecasts and Investment Ratings
The company is the only commercial mixing platform under China Construction Group, with the second largest commercial mixing capacity in the world. We expect the company's net profit to the mother in 2023-2025 to be 676/776/866 million yuan respectively, up 22.79%/14.81%/11.59%, respectively; EPS is 0.54/0.61/0.69 yuan respectively.
Looking at demand recovery in the short term boosts the company's performance; in the medium to long term, the demand side is backed by China Construction Group. It plans to introduce strategic investor Conch Cement to help improve in all aspects on the resource side and capital side. The company has strong development potential and is upgraded to a “buy” rating.
Risk warning
There is a risk that the growth rate of infrastructure and real estate investment will drop sharply; the rate of commercialization of concrete will fall short of expectations; there is a risk of bad accounts receivable; and cooperation with strategic investors to be introduced falls short of expectations.