In the first half of 2023, the company achieved an income of 1.487 billion yuan, an increase of 5.20% over the same period last year; a net profit of 39.2084 million yuan, an increase of 20.85%; a net profit of 31.941 million yuan, an increase of 2774.26%; a basic EPS of 0.09 yuan per share, an increase of 12.50% over the same period last year; and a weighted average ROE of 2.25%, an increase of 0.27pct over the same period last year.

23Q2 has turned losses into profits, and its waterproofing business is growing rapidly. The company's 2023H1 achieved a total operating income of 1.487 billion yuan, + 5.20% compared with the same period last year; the net profit before / after deduction was 39.2084 million yuan / 31.941 million yuan, which was + 20.85% plus 2774.26% compared with the same period last year. From a quarterly point of view, the 23Q1/Q2 income is 491 million yuan / 995 million yuan, which is 7.56% compared with the same period last year, and the net profit is 1596.09 yuan / profit 55.1692 million yuan, respectively. Q1 loss decreased by 58.04% compared with the same period last year. Q2 turned from loss to profit, year-on-year-21.73%. In terms of products, the income of architectural coatings / building energy-saving materials / waterproof materials in the first half of the year was 1.041 billion yuan / 293 million yuan / 112 million yuan, compared with the same period last year, which was + 3.81%, 3.47%, 74.60%, and the business of architectural coatings grew steadily, of which the revenue of engineering coatings / home decoration coatings was + 2.93%, respectively, compared with the same period last year. The growth rate of waterproof materials is remarkable, among which, the revenue of waterproof roll materials / waterproof coatings is + 63.62% and 167.92% respectively compared with the same period last year. 23H1's distribution revenue accounted for 79.54%, accounting for a decline in 3.90pct compared with the same period last year. It is estimated that the growth rate of distribution / direct sales revenue is + 0.3% and 30.0% respectively compared with the same period last year.

The cost of fee control has been significantly reduced, and the gross profit margin has increased. 23H1's gross profit margin / net profit margin was 33.95% / 2.64% respectively, year-on-year + 2.75pct/+0.34pct, respectively. The increase in profit margin was mainly due to the decline in the price of upstream raw materials and the continued promotion of cost-reduction and efficiency measures. 23Q2 single-quarter gross profit margin year-on-year + 3.07pct to 33.43%, net profit margin-2.07pct to 7.62%. From the product point of view, the gross profit margin of 23H1 architectural coatings / building energy-saving materials / waterproof materials is + 5.97pct/-1.76pct/-4.71pct to 40.75% to 40.75%, 17.58% and 4.78% respectively; on the price side, the price of 23H1 engineering coatings / home decoration coatings is-3.55% and 10.92%; and the price of thermal insulation decorative panels / thermal insulation materials is-11.61% and 13.22%, respectively. On the cost side, the prices of the main raw materials of 23H1 have dropped across the board, and the prices of emulsion / titanium dioxide / polystyrene particles / resin / auxiliaries / calcium silicate plates / pigments and fillers are-16.85% and 21.06%, respectively, compared with the same period last year. 18.41% /-23.05%, 10.17%, 8.43% and-19.67%, respectively. From the cost side, the expense rate during the 23H1 period is-4.40pct to 24.54% compared with the same period last year, in which the sales / management / R & D / financial expense rates are respectively-3.76pct/-0.10pct/-0.70pct/+0.15pct. The operating cash flow of 23H1 Company has a net inflow of 68.5897 million yuan; the balance of accounts receivable and bills is 2.248 billion yuan,-7.59% of the same period last year.

Tubao protection product line is complete, the channel is gradually improved, helping to increase the market share. In terms of channels, the company has formed a marketing network covering the whole country. At present, it has 44 provincial marketing organizations and 144marketing offices, basically realizing full coverage of the national prefecture-level city marketing network. As of 23H1, the company has more than 25585 registered distributors, which helps the company to realize the organic combination of channel and collection, small B and big B, urban and rural areas, online and offline, products and services. In terms of products, the company actively develops waterproofing business, combined with the main business of architectural coatings and thermal insulation materials, and is expected to provide its own professional solutions for the trend of "integration of coating, protection and prevention" (paint + heat preservation + waterproofing integrated bidding) in the industry. further strengthen their own competitive advantage, help the company to further improve its market share.

The stock market demand persists, and the "highly recommended" investment rating is maintained. At the industry level, in the medium and long term, with the comprehensive promotion of green transformation in China, a large number of "low and small pollution" enterprises have been cleared, head enterprises have accelerated expansion and market sinking, and market concentration is expected to increase. the promotion of urban villages / old reforms / indemnificatory apartment and other projects will help to support the market demand for coating protection building materials. At the company level, the company is one of the few enterprises in the industry that have four product systems and system service capabilities of functional architectural coatings, integrated thermal insulation materials, building energy-saving thermal insulation materials and waterproof materials. Considering the fierce price competition in the paint industry this year, affecting the price and income of the company's terminal products, we adjust our profit forecast for the company. It is estimated that the company's EPS in 2023-2024 will be 0.46 yuan and 0.59 yuan respectively, corresponding to 21.0x and 16.4x PE respectively, maintaining a "highly recommended" rating.

Risk tips: the decline in the growth rate of real estate and infrastructure investment, the intensification of market competition, and the sharp rise in the cost of raw materials.