Core views:
Starting with polymer composite finishing materials, we transformed and built a pan-home furnishing industry ecosystem. Tianan has been deeply involved in home decoration and automotive interior finishing materials for many years. In '21, it acquired Ruixin Decoration Materials and Yingpai Ceramics, incorporated fireproof panels and architectural ceramics into its business layout, and accelerated the layout of the pan-home furnishing industry.
Pioneering the asset-light model in the industry, Xinying is expected to shine even more brilliantly. According to data from the China Building Sanitary Ceramics Association, the total scale of the building ceramics industry in '22 may have exceeded 350 billion yuan, CR5 is less than 9%, and there is still plenty of room for concentration improvement. Under the state-owned enterprise system, Eagle led the industry in the early stages of development, but it failed to adapt to market-based competition in the past 20 years and was overtaken by its peers. After Tianan joined the company, it carried out market-based operating system reforms. In '23, Eagle's revenue was +21% compared to the same period, making it the fastest growing among leading pottery companies. Against the backdrop of shrinking total demand in the industry and overcapacity, Eagle is focusing on R&D and sales, choosing an asset-light model with OEM as the main focus, and pioneering the asset-light model in the ceramic tile industry.
Strong automotive interior finishing materials products, focusing on seizing NEV opportunities. According to data from the China Automobile Association, we estimate that the automotive interior finishing materials market was about 30 billion yuan in '23. Currently, it is still mainly foreign-funded enterprises, and a few domestic-funded enterprises are gradually gaining ground. Tianan has been deeply involved in the industry for more than ten years, gradually winning recognition from well-known automobile manufacturers at home and abroad, and will focus on seizing NEV opportunities in the future.
It has the ability to cover all aspects, and will enter a fully equipped racetrack in the future. Tianan's current product system covers prefabricated solutions such as walls and interiors, hardcover materials such as building ceramics and fireproof panels, and environmentally friendly finishing materials. In addition, Tianhui Construction provides construction service capabilities, and Eagle Brand provides front-end brands and traffic entrances. The assembly business is exploring a modular store-wide output model, which is expected to be quickly replicated after success.
Profit forecasting and investment advice. We expect EPS to be 0.56, 0.74, and 0.90 yuan/share in 23-25, respectively. According to the latest closing price, PE will be 15.18, 11.44, and 9.37 times, respectively. Referring to comparable company valuations, we gave the company a judgment of 15x PE in 2024, corresponding to a reasonable value of 11.10 yuan/share, covered for the first time, and gave it a “buy” rating.
Risk warning. Channel construction and expansion fell short of expectations, fluctuations in raw fuel prices exceeded expectations, and customer expansion of automotive interior finishing materials fell short of expectations.