occurrences

On October 20, Tianan New Materials released its three-quarter report for 2023: the first three quarters achieved operating income of 2,228 million yuan/yoy +14.26%, and net profit of 75 million yuan/yoy +302.58%.

Key points of investment

Performance has bottomed out and rebounded, and the inflection point is now

The company achieved revenue of 863 million yuan/yoy +21% /qoq +4% in the third quarter of 2023, and realized net profit of 38 million yuan/yoy +1258% /qoq +31%. The company's performance grew rapidly, mainly due to the company's impact on major real estate customers in the same period in 2022 and estimated credit impairment losses of 29 million yuan. Excluding this impact, the company's net profit for the third quarter increased 19% year-on-year, keeping pace with revenue growth.

The company's revenue has grown rapidly since 2020, from 870 million yuan in 2020 to 2.72 billion yuan in 2022, mainly due to the company's merger with Zhejiang Ruixin and Eagle in 2021. However, the company has continued to lose net profit over the past two years. The core reason is that large credit impairment has been applied to major real estate customers. Furthermore, the acquired Eagle Brand Company's performance fell short of expectations due to the pandemic and the downturn in the real estate industry, and the company calculated some impairment in goodwill. Looking ahead, the impairment of the company's credit and goodwill has been fully calculated, and it is expected that the synergy between various subsidiaries will gradually become apparent. The company's operations have reached an inflection point, and it is expected that it will welcome medium- to long-term upward opportunities.

Endogenics and epitaxial expanded product categories, and the ecological layout of healthy living gradually became the company. The company was founded in 2000, entered the home finishing materials market in 2004, and entered the automotive interior market in 2010. A business pattern with polymer composite finishing materials as the main body was initially formed. After the company went public, Tianan Integrated was established to explore and expand into the pan-home furnishing sector, and acquired Zhejiang Ruixin and Yingpai Ceramics in 2021, and Tianhui Construction Technology was established in 2023. The entire ecological layout was officially opened. Using decorative materials as the basis, components such as wall panels/floors were extended horizontally to the line, and broadened with mature channels such as Eagle and Ruixin, to achieve closed-loop integration of the industry chain in the pan-furniture field. Looking forward to the future, Tianan New Materials subsidiaries are expected to develop collaboratively and empower each other, continuously expand the company's breadth and depth in products, R&D, brands, services, etc., to help the company achieve the strategic plan of “building a consumer brand for a healthy lifestyle” and achieve steady medium- to long-term profit growth.

Steady development of automotive interiors, bound with high-quality customers to ensure medium- to long-term growth

The company's automotive interior finishing materials business achieved revenue of 200 million yuan/yoy +2.6% in the first half of 2023, accounting for about 15% of the company's revenue. The main products of the company's automotive interior business are PVC, TPO and other finishing materials, which are widely used in passenger cars, bus seats, instrument panels, door panels, sun visors, shift shields, decorative panels, ceilings, curtains, etc., and maintains stable cooperation with well-known domestic and foreign car companies such as BYD, Chery, Jianghuai, Changan, Aian, Xiaopeng, Geely, Great Wall, and Smart. We believe that the company's automotive interior business is expected to usher in many market opportunities in the future to help the company continue to grow: 1) the company will gradually replace foreign investment in joint venture OEMs with advantages such as service and price; 2) new forces may switch to PVC when models are upgraded, driving the share of PVC materials in interior materials; 3) the company's independent brand new energy sector, which has a high share of independent brands, is growing rapidly, driving the company's overall market share to increase. Overall, the company's automotive interior business has deep cooperation with high-quality customers, and is expected to achieve rapid growth through market-side opportunities.

Profit forecasting

In 2023/2024/2025, the company's net profit to the parent is estimated to be 1.1/22/270 million yuan, EPS is 0.49/1.0/1.24 yuan, and corresponding PE is 20/10/8 times, respectively. Based on the company's construction of a healthy living ecosystem, automotive interiors welcome development opportunities. An inflection point in performance has now arrived. We are optimistic about the company's medium- to long-term development opportunities and give it a “buy” rating.

Risk warning

Sales volume in the automotive industry fell short of expectations; automotive interior business growth fell short of expectations; demand in the ceramics industry fell short of expectations; raw material prices rose above expectations; competition increased risk.