Matters:
The company announced its three-quarter report for 2023. The first three quarters achieved revenue of 6.24 billion yuan, a year-on-year increase of 4.8%, and net profit of 80 million yuan, a year-on-year decrease of 69.4%.
Ping An's point of view:
The results of the first three quarters were under pressure due to various factors. The company's net profit declined significantly in the first three quarters, mainly due to: 1) there was no significant recovery in industry demand, and industry competition was fierce. The company's revenue increased by only 4.8% in the first three quarters; 2) intense price competition combined with costs were still high, and gross margin fell 0.4pct to 21.2% year on year; 3) the company increased its market development efforts during the period, including C-side investment and support from core dealers, which led to an increase of 0.5pct to 15.6% in the period; 4) Credit impairment preparations increased by 190 million to 290 million yuan.
The improvement in the cash-on-to-cash ratio and the increase in the pay-to-cash ratio have an impact on operating cash flow. The company's net operating cash flow for the first three quarters was -850 million yuan, down from -710 million yuan in the same period last year. The main reason is that although the cash-on-to-income ratio increased by 7 pct to 90%, the payout ratio increased by 11 pct to 109%. Accounts receivable/notes and other receivables for the first three quarters increased by 670 million yuan to 5.8 billion yuan compared with the beginning of the year, a significant decrease of $1.63 billion compared to the same period last year. During the period, the company successfully issued convertible bonds and raised 2.198 billion yuan to provide financial guarantees for future capital increases and production.
Investment suggestions: Maintain the company's profit forecast. Net profit from 2023-2025 is estimated to be 310 million yuan, 570 million yuan, and 730 million yuan respectively. The current market value corresponding to PE is 25 times, 14 times, and 11 times, respectively.
As the fundamentals of the industry gradually improve, the company has both brand, channel and product advantages. It will still have good growth in the future and maintain a “recommended” rating.
Risk warning: 1) Risk of fluctuations in raw material prices: The raw materials required for the company's production mainly include asphalt, membranes (including insulating film), polyester base, SBS modifiers, polyether, emulsion, base oil, paraffin, isocyanate, etc., which are petrochemical products. If the purchase price of these raw materials continues to rise in the future, it will have a negative impact on the company's profitability; 2) The risk that real estate demand will fall short of expectations: the real estate industry is the main source of sales revenue for the company. If the subsequent restoration of the real estate industry falls short of expectations and new construction begins, it will adversely affect the company's performance growth; 3) Accounts receivable recovery risk: If there is no significant improvement in the real estate capital environment in the future, and the financial situation of the housing enterprise customers served by the company deteriorates, it will cause the company's accounts receivable not to be recovered on time or cannot be recovered, resulting in bad debts.