Net profit for 23 years +0.3%/-6.1%, maintaining the “purchase” rating. On March 28, the company issued a 2023 results announcement: achieving revenue/net profit of 308.7 billion yuan in 23, +0.3%/-6.1% year over year, and net profit to mother lower than our previous forecast (2.77 billion yuan); of these, 2H23 achieved revenue/net profit to mother of 15.577 billion yuan, -28.7% year-on-year, +1.8%/-41.5% compared to the first half of the year. Under the weak operation of real estate, industry demand is under pressure, the cost of superimposed raw materials has dropped to a low level, and fierce competition in plastic pipe prices has dragged down revenue growth. Considering the strong pressure on the completion side in 24, compounded by tight local capital, competitive trends, or continuation, we adjusted the 24-26 net profit forecast to be 25.7/29.0/3.34 billion yuan (previous value: 31.6/3.72 billion yuan). Comparing the company's 24-year Wind's consistent forecast of 12.1xPE, considering that the company has production capacity advantages and high market share, but H shares are relatively weak in liquidity. The target price of HK$4.51 (previous value of HK$5.80) is maintained as a “purchase”.
Sales volume is growing rapidly, and the competitive advantage is significant; the cost side is too large, and profitability is supported. According to the company's performance announcement, the company's plastic piping/building materials home/other business revenue in '23 was 245.85/28.4/3.44 billion yuan, respectively, -4.0%/+5.0%/+40.3% YoY. The plastic pipe business achieved PVC product sales/average sales price/ revenue of 1.941 million tons/7209 yuan/14.0.0 billion yuan, +9.3%/-10.7% YoY to achieve sales volume of non-PVC products/ Average sales price/revenue 705,000 tons/15010 yuan/10.59 billion yuan, +14.5%/-6.9%/+6.6% year-on-year. On the cost side, according to Wind, the average price of PVC resin in '23 was 6127 yuan/ton, -19.9% year over year, gross profit margin of 26.3%, -0.5 pct year over year, 24.8% gross profit margin for 2H23, -2.3 pct year on year, and -3.0 pct month on month.
The expense ratio increased by 2 pct year-on-year during the 23-year period, and the balance ratio for repayment of long-term loans decreased by 14.1%, to +2.0pct year-on-year. Among them, the sales/management/finance expenses ratio was 5.1%/5.4%/3.6%, respectively, +0.3/+1.4pct, which included R&D expenses of 1.24 billion yuan, R&D expenses rate 4.0%, and +0.05pct year over year. Accumulated impairment of $860 million over 23 years, +84% year over year.
The company's net interest rate to mother in '23 was 7.7%, -0.5pct year on year; 2H23 net profit margin was 5.6%, -2.1pct yoy, -4.1pct month-on-month. At the end of 23, the company's balance ratio and interest-bearing debt ratio were 59.5/32.4%, respectively, -2.2/-2.5pct year-on-year, mainly due to a significant decrease in the absolute value of long-term loans, -32.3% compared to the same period last year.
In 2023, a cash dividend of HK$0.2 per share was distributed, and we estimate the dividend rate to be around 24%.
The issuance of trillion-dollar treasury bonds has been completed. After the holiday, the pace of physical restoration of municipal water resources was relatively fast. In the fourth quarter of '23, the central government issued an additional 23-year special treasury bond to concentrate efforts to support post-disaster recovery and reconstruction and make up for shortcomings in disaster prevention, mitigation and relief. According to the National Development and Reform Commission, all of the projects to issue additional treasury bonds of 1 trillion yuan have been issued on February 7, and the funding guarantee for water conservancy construction has been strengthened, and it is expected that it will accelerate in 24 years. Judging from our high-frequency physical volume tracking situation, as of March 23 (6th week of the lunar calendar), the PE pipe operating rate was 36%, the downstream PVC operating rate in South China was 51%, the downstream PVC operating rate in South China was 51%, and the lunar calendar was +6pct year on year. The pace of physical volume restoration related to municipal water conservancy was faster than in previous years, or formed a certain support for pipe demand in 24 years.
Risk warning: the risk of price increases for upstream raw materials, increased risk due to industry competition, and large losses in the photovoltaic business.