Core views

The company disclosed its 2023 performance forecast. In 2023, the company achieved net profit of 2.15 billion yuan, a year-on-year decrease of about 49.4%; the corresponding net profit to mother for the fourth quarter was about 130 million yuan, a year-on-year decrease of 79.9%. Investment income attributable to the company decreased by 2.1 billion yuan year-on-year due to large fluctuations in the price of lithium carbonate. If the impact of Lanke Lithium is excluded, the net profit performance of the company's main business to mother is basically the same. We are optimistic that the company's African building materials business will benefit from increased urbanization rates in Africa and will maintain a high level of deterministic growth. For the first time, coverage will be given a purchase rating.

occurrences

The company disclosed its 2023 performance forecast. In 2023, the company achieved net profit of 2.15 billion yuan to mother, a year-on-year decrease of about 49.4%.

Brief review

Fourth-quarter results were slightly lower than expected due to investment business. In 2023, the company achieved net profit of about 2.15 billion yuan, a year-on-year decrease of 49.4%, a decrease of 2.10 billion yuan compared with the same period last year; the corresponding net profit to mother for the fourth quarter was about 130 million yuan, a year-on-year decrease of 79.9%. Due to large fluctuations in the price of lithium carbonate, it continued to drop from 500,000 yuan/ton to 100,000 yuan/ton in early 2023. As a result, the performance of the Lanke Lithium industry, where the company participated, fell sharply by 62% compared to the same period last year, and investment income attributable to the company decreased by 2.1 billion yuan year on year. If the impact of Lanke Lithium is excluded, the net profit performance of the company's main business to mother is basically the same.

Overseas building materials have benefited from rising urbanization rates in Africa to maintain a high level of deterministic growth. In the first half of 2023, the company's overseas building materials business achieved revenue of 1,907 billion yuan, an increase of 25.0% over the previous year; by the end of June, the company had built 6 ceramic tile production lines and 1 sanitary ware production line in 5 countries in Africa, and achieved a ceramic output of 70 million square meters in the first half of the year, corresponding to an average price of 27.2 yuan per square meter. According to World Bank data, Africa's urbanization rate reached 44.5% in 2022, and internal fragmentation is severe. There is still plenty of room for improvement in the long run. In the process, ceramic tile consumption in Africa will continue to grow appreciably. Against the backdrop of a decline in global ceramic tile consumption in 2022, African ceramic tile consumption increased 8.2% year on year; however, judging from the per capita ceramic tile consumption, Africa is currently only 0.92 square meters/person, which is still a certain gap compared with the world's per capita ceramic tile consumption of 2.1 square meters/person. The company currently has three production capacity plans and construction. It is estimated that after all production is put into operation, it will form a ceramic production capacity of nearly 200 million square meters/year, as well as 2.6 million sanitary ware and 400,000 tons of glass.

The building materials machinery business is increasing the overseas distribution of spare parts and consumables. Currently, the company's building materials machinery business is mainly based on construction ceramic machinery. Currently, overseas orders for ceramic machinery account for more than 60%, and sales are concentrated in developing and emerging countries such as India, Africa, and the Middle East, and will also benefit from the increase in ceramic consumer demand in these countries in the future. At the same time, the company acquired 40% of domestic ink leader Guocera Kanglitai in 2023 to increase its layout in the field of accessories and consumables, and jointly establish Guangdong Kanglitai Company. In the future, it will lay out overseas ink business through Keda's overseas customer resources. Both the overseas business and the parts and consumables business have higher profit margins than the domestic ceramic machinery business. By increasing these two business layouts, the company will achieve positive growth in the revenue and profit of the building materials machinery business.

Covered for the first time, giving a buy rating. We expect the company's revenue in 2023-2025 to reach 92.2/118.0/15.89 billion yuan, respectively, net profit to mother of 22.5/1.46/2.08 billion yuan, corresponding EPS of 1.15/0.75/107 million yuan, and corresponding PE of 9/14/10 times. We used a distributed valuation method to give the company 20 times PE for the pottery machine business and 25 times PE for the building materials machinery business (the compound net profit growth rate of domestic comparable companies in 2023-2025 is about 20%, corresponding to PE in 2024; we expect the compound growth rate of the company's 2023-2025 net profit to be 53%), the lithium carbonate business is estimated 10 times (refer to domestic comparable companies), and the target price is 14.55 yuan/share, corresponding to the 2023-2025 PE 13/19/14 times, with initial coverage for “buy” “Enter” rating.