2023 results in line with our expectations and market consensus
Beijing New Building Materials (BNBM) announced that in 2023, revenue increased by 11% YoY to Rmb22.4bn; net profit attributable to shareholders rose 12% YoY to Rmb3.52bn; and recurring net profit grew 32% YoY to Rmb3.5bn, largely in line with our expectations.
Gypsum boards: Sales volume increases steadily; earnings grow. In 2023, sales volume of gypsum boards increased by 3.8% YoY to 2.17bn sqm, with market share staying at 68%. Revenue from gypsum boards rose 3% YoY to Rmb13.8bn. Prices of this product stayed at Rmb6.39/sqm despite lower raw material prices and fuel prices, thanks to the firm's pricing power. GM of gypsum boards increased by 3.5ppt YoY to 38.5% in 2023, thanks to stable product prices. In 4Q23, GM of this product dropped due to the impacts of a slack season and higher costs. As a result, overall GM fell 0.4ppt YoY and 5ppt QoQ in 4Q23.
Light steel studs: Revenue slides; gypsum board related businesses grow rapidly. In 2023, revenue from light steel studs dropped by 9% YoY to Rmb2.3bn; sales volume of this product increased by 3% YoY; and GM of light steel studs fell 0.2ppt YoY to 18.7%, due to lower steel prices. Revenue of other lightweight construction materials jumped 150% YoY to Rmb2.2bn, as the sales volume of gypsum boards increased rapidly. The firm continued to improve its product portfolio.
Waterproof materials: Revenue increases despite headwinds. In 2023, revenue from waterproof materials increased by 24% YoY to Rmb3.9bn. Specifically, revenue from coiled materials grew 29% YoY to Rmb2.8bn. Net profit of waterproof materials reached Rmb153mn in 2023 (vs. -Rmb99mn in 2022), with net profit margin at 4%. Accounts receivable (AR) remained stable. AR turnover days dropped by 43 days YoY to 180 days. The net operating cash flow of the waterproof material business stayed at Rmb251mn in 2023.
GM recovers; net profit margin increases. Full-year GM increased by 0.6ppt YoY in 2023 to 29.9%, thanks to lower costs and stable product prices. The firm's selling, G&A, and R&D expense ratios were up 0.4ppt YoY, down 1.5ppt YoY, and down 0.1ppt YoY to 4.2%, 3.6%, and 4.2%. Its recurring net profit margin increased by 2.6ppt YoY to 15.6%.
Cash flow remains strong; asset structure is sound. The firm's net operating cash flow came in at Rmb4.7bn, with the cash-to- revenue ratio at 102% and the cash-to-net profit ratio at 133%, as the company increased efforts in AR and inventory control. AR and inventory turnover days dropped by two days and nine days YoY. Its asset-liability ratio fell 2.4ppt YoY to 22.6%.
Dividend payout ratio increases; dividend yield is attractive. In 2023, the firm's cash dividend payment rose 27% YoY to Rmb1.41bn; dividend payout ratio increased to 40%; and dividend yield reached 3%.
Trends to watch
Gypsum board business remains resilient; upbeat on waterproof material and paint & coatings businesses. We think the gypsum board business will maintain high-quality development going forward. It will likely boost earnings and cash flow at the company, thanks to higher value of products per customer, improved product mix, and higher profit margin. In addition, we think the firm will gain market share in the waterproof material and paint & coatings markets, as it improves management, cost control, and marketing. These businesses will likely create a second growth engine for the company, in our view.
Financials and valuation
Considering acquiring Carpoly Chemical Group, we lift our 2024 earnings forecast 5% to Rmb4.4bn, and we introduce our 2025 net profit forecast at Rmb5.2bn. The stock is trading at 10.6x 2024e and 9.1x 2025e P/E. We maintain an OUTPERFORM rating, but lift our target price 13% to Rmb36. Our TP implies 14x 2024e and 12x 2025e P/E, offering 30% upside.
Risks
Demand for gypsum boards declines more rapidly than expected; efforts to consolidate the paint and coatings business and/or growth of the waterproof material business disappoint.