2023 results are in line with our and market expectations
The company disclosed annual report results: 2023 revenue of 22.4 billion yuan, +11% year on year, net profit to mother of 3.52 billion yuan, +12% year on year, after deducting non-net profit +32% year over year to 3.5 billion yuan, which is basically in line with expectations.
1) Gypsum board sales rose steadily and profit expansion: Gypsum board sales in 2023 were +3.8% YoY to 2.17 billion square meters (market share remained basically 68%), and revenue +3% YoY to 13.8 billion yuan. Due to the company's sufficient bargaining power for products, the unit price of gypsum board remained stable at 6.39 yuan/square when raw and fuel materials declined, making gypsum board gross margin +3.5ppt to 38.5% year on year; 4Q23 saw a decline in gypsum board gross margin due to off-season effects and rising costs, resulting in 4Q23's comprehensive gross margin -0.4ppt (month-on-month to -5ppt); 2) Keel's revenue declined slightly, and the gypsum board+ business rapidly emerged: Keel revenue in '23 was -2.3 billion yuan (+3% year-on-year sales), and gross margin -0.2ppt to -0.2ppt 18.7% (we think this is mainly due to falling steel prices), while other lightweight building materials businesses rapidly expanded, with revenue of +150% to 2.2 billion yuan in 23 years, helping the company build a complete product matrix; 3) Waterproof bucked the trend: revenue in the waterproof sector was +24% year-on-year to 3.9 billion yuan, of which coil was +29% to 2.8 billion yuan, and annual net profit was also stable from 22-99 million yuan to profit to 153 million yuan (corresponding net interest rate of 4%), and total accounts receivable were stable (corresponding weekly turnover days reversed the trend year-on-year) 43 Day to 180 days), net operating cash flow of the sector stabilized at +251 million yuan; 4) Gross margin recovered, net interest rate increased: annual gross margin +0.6ppt to 29.9% year-on-year due to declining costs, price maintenance, etc.; sales/management/R&D expenses ratio +0.4/-1.5/-0.1ppt to 4.2%/3.6%/4.2% year over year, after deducting non-net interest rate +2.6ppt to 15.6% year over year; 5) Strong cash flow and excellent asset structure: the company's net operating cash flow was 4.7 billion yuan (revenue ratio 102%, net cash ratio) 133%), mainly because the company strengthened accounts receivable and inventory control (two turnover days -2/-9 days), and the balance ratio was -2.4ppt to 22.6% year over year; 6) The dividend ratio increased, and the dividend ratio was attractive: total cash dividends in 23 were +27% YoY to 1.41 billion, and the corresponding dividend ratio rose to 40%, corresponding to the 23 dividend rate of 3%.
Development trends
Gypsum board is very resilient. When the “two wings” fly together, the quality of long-distance runners is outstanding. We believe that in the future, the company's gypsum board business will continue to develop with high quality under the “four transformations”. By expanding customer unit prices and increasing the product structure, the profit margin of the sector will be increased, and sufficient profit and cash flow will be contributed to the company. At the same time, the waterproof and coating sector is gaining momentum. In the future, the company is expected to actively promote waterproofing and coatings to continue to gain market share and contribute to the second growth curve through various methods such as management empowerment, cost control, and marketing development.
Profit forecasting and valuation
As a result of the acquisition of Garbo, we raised our 2024 profit 5% to $4.4 billion, and introduced 2025 net profit of 5.2 billion yuan. The current share price is only 10.6x/9.1x P/E for 2024/25. We maintained our outperforming industry rating and raised our target price by 13% to 36 yuan, corresponding to 14x/12x P/E in 2024/25, implying 30% room for growth.
risks
Demand for gypsum board exceeded expectations, paint integration fell short of expectations, and waterproofing business fell short of expectations.