Incidents:

The company released its 2023 annual report. In 2023, the company achieved operating income of 9.696 billion yuan, a year-on-year decrease of 13.10%; net profit to mother was 2,092 billion yuan, a year-on-year decrease of 50.79%. The review is as follows:

Building materials machinery revenue declined, and multiple measures were taken to help the sector's performance recover. The company's building materials machinery revenue in '23 was 4.477 billion yuan, down 20.16% year on year, mainly affected by the global economic slowdown and the domestic real estate market environment. The company continues to carry out industrial chain integration and internationalization. In terms of industrial chain integration, the company has strengthened the company's overseas sales and service network and overseas parts supply capacity by investing in Guocera Kanglitai, a leading domestic ceramic glaze company, and establishing a joint venture to establish Guangdong Kanglitai and the acquisition of Italian press and abrasives company FDS; in terms of internationalization, the company has accelerated its overseas sales and service network and overseas parts supply capacity by building a BOZUYUK factory in Turkey, establishing an Indonesian subsidiary, and setting up offices in Eastern Europe and Mexico. With the strengthening of the company's brand strength, product strength, and strength in the field of accessories and consumables, the 24-year building materials machinery sector's performance is expected to recover.

Promote the “big building materials” strategy, and the overseas building materials business is growing steadily. The company focuses on the “big building materials” strategy, actively deepens production capacity layout, and continuously expands regional and product categories. In '23, the company's overseas building materials business achieved revenue of 3,655 billion yuan, an increase of 11.59% over the previous year. Overseas building materials companies have operated 6 factories in five countries in Africa, with 17 production lines for building ceramics and 1 production line for sanitary ware. The total production of architectural ceramics products exceeded 150 million square meters during the year. Currently, the company has building materials projects under construction in Africa, Central America and other regions. After all existing projects are completed, the company is expected to produce a total production capacity of over 200 million square meters of architectural ceramics, 2.6 million pieces of sanitary ware, and 400,000 tons of construction glass per year. The company's overseas building materials business is expected to continue growing in '24.

The anode materials business focuses on reducing costs and increasing efficiency, and lithium ore investments contribute stable returns. The company's revenue for anode materials in '23 was 740 million yuan, down 38.85% year on year, mainly affected by the decline in anode material prices.

Facing the current situation of structural overcapacity in anode materials, the company will further reduce costs and increase efficiency, and release anode material production capacity in an orderly manner. Lanke Lithium, in which the company is a shareholder, currently has a lithium carbonate production capacity of 40,000 tons/year, and the highest daily output has exceeded 140 tons. With lithium prices continuing to decline in 2023, Lanke Lithium's contribution to the company's net profit attributable to the parent company still reached 1,294 billion yuan. Lanke Lithium uses low-cost salt lake lithium extraction technology, which is expected to bring stable investment returns to the company in the future.

Profit forecast: The company's net profit for 2024-2026 is estimated to be RMB 18.57, 21.90 and RMB 2,555 million, respectively, with corresponding PE values of 11, 9, and 8 times, respectively, maintaining a “buy” rating.

Risk warning: increased competition in overseas markets; exchange rate risk; failure of profit forecasting and valuation models