Matters:
Keshun Co., Ltd. released its three-quarter report for 2023: During the reporting period, the company achieved operating income of 6.241 billion, +4.77% year-on-year, net profit of 82 million yuan, -69.44% year-on-year, and a single Q3 revenue of 1.904 billion, +4.86% year-on-year, and net profit of 0.21 million yuan, -9.96% year-on-year.
Commentary:
Profit recovered month-on-month, but is still at the bottom. It is planned to repurchase no more than 100 million yuan of shares. In the first three quarters of 2023, the company achieved operating income of 6.241 billion, +4.77% year-on-year, net profit of 82 million yuan, -69.44% year-on-year. On a quarterly basis, Q1-Q3's revenue was +7.59%, +2.67%, and +4.86% year-on-year, and net profit of -41.37%, -98.26%, and -9.96% year-on-year. The revenue side continued to grow, and performance declined a lot due to factors such as gross profit margin, impairment loss, and expense ratio. On a month-on-month basis, Q3 had a quarterly net profit margin of 1.03%, a slight increase from Q2, but profit was still at the bottom. According to the interim report, the company has set up a special cost reduction team to strictly control expenses, improve per capita efficiency, and reduce various types of ineffective expenses. In addition, the company plans to use its own capital of 500 million to 100 million yuan to buy back some of the company's public shares. The repurchased shares are intended to be used for equity incentive plans or convertible corporate bonds to shares. The price of the proposed shares will not exceed 11.00 yuan (inclusive). In terms of diversified business, based on the principle of prudence, starting September 1, 2023, the company will no longer include Toyosawa shares in the scope of the company's consolidated statements.
Factors such as gross profit margin, impairment, and expenses erode profits. The company's gross margin for the first three quarters of 2023 was 21.19%, y-0.42pct, single-Q3 gross profit margin 21.35%, +2.37% yoy, +0.6pct month-on-month. Net profit margin 1.28%, y-3.22pct, single-Q3 net profit margin 1.03%, -0.27% yoy, +0.9pct month-on-month. We believe that the pressure on profit is mainly due to: 1) the recovery in market demand falls short of expectations and the decline in gross margin; 2) credit and asset impairment losses of $302 million, with losses of nearly 200 million yuan over the previous year, affecting profit margins by about 3.2 percentage points; 3) the period rate was +0.5 pct year over year, mainly due to an increase in sales rates; 4) the year-on-year decrease in investment income and government subsidies. In terms of cash flow, the company's net operating cash flow for the first three quarters was -848 million yuan, year-on-year -139 million yuan, mainly due to cash purchased goods and receiving labor payments of +772 million yuan year-on-year, an increase in the revenue ratio, which increased to +6.62 pct to 89.9% over the same period last year. Accounts receivable and notes receivable totaled 5.370 billion yuan, -5.46% year-on-year.
Strengthen C-side channel construction, convertible bond issuance production capacity continues to expand: 1) Strengthen C-side market development: strengthen Keshun building materials brand building simultaneously online and offline, and at the same time, the C-side continues to enrich product categories such as waterproof coatings, tile adhesives, sewing agents, and reinforcements to accelerate the investment and construction of satellite factories across the country; 2) Set up a special cost reduction team to enhance profitability: senior management leadership, multiple departments participate to increase cost reduction assessment efforts; 3) Strengthen accounts receivable management and make full use of convertible bonds to raise capital and build long-term competitiveness; 22) 100 million convertible bonds have been successfully issued and listed, mainly raising capital It is used to expand production bases, intelligent transformation projects for existing factories, and some additional working capital.
Profit forecast and investment advice: The company is one of the leaders in the waterproofing industry and has significant competitive advantages. With the implementation of new waterproof regulations, the company's market share is expected to increase further. Considering factors such as the slow recovery of downstream demand this year and the company's high channel construction expenses, we adjusted the company's 2023-2025 EPS forecasts to 0.15/0.43/0.63 yuan/share (the original value was 0.28/0.52/0.74 yuan/share), and the corresponding PE was 44x/16x/11x.
Risk warning: New real estate construction area has declined sharply, raw material prices have fluctuated sharply, and new business development has fallen short of expectations.