Incident: Beixin Construction Materials released its 2023 annual report. The company achieved operating income of 22.4 billion yuan in 2023, an increase of 11.3%, and realized net profit of 3.5 billion yuan to mother, an increase of 12.1%.
The main gypsum board business is fully resilient, and the basic operating market is stable. In '23, demand for real estate completion improved as policies such as “building insurance” progressed. As a leading enterprise in the industry, the company continues to show its competitive advantage, and has the advantage of pricing power to establish stable “cost and profit” price expansion, and achieve both sales and gross margin growth. During the reporting period, the company produced 2.165 billion square meters of gypsum board, an increase of 3.34%; sales volume was 2.172 billion square meters, an increase of 3.78%; gross margin was 38.49%, an increase of 3.54 percentage points. The overall operation of the gypsum board business is steady, is the company's basic profit market, and can generate good cash flow to support the implementation of the company's long-term strategy.
Waterproof+paint are both powerful, and “two wings” can be expected to grow. During the reporting period, the company's waterproof business expansion accelerated, with more than 1,300 new development channels throughout the year, achieving revenue of 3.9 billion yuan, a contrarian increase of 24.1%; gross margin was 19.1%, an increase of 2.1 pct. In 2019, the company entered the field of waterproof materials. After several years of integration, it is now gradually on the right track and its potential is gradually being released. In terms of coatings, the company continues to strengthen industrial coatings, holds 100% of the shares in Lighthouse Coatings, and built a 50,000 ton industrial paint production base in Nangang, Tianjin. In addition, the company completed the joint restructuring of Gabriel. According to Gabrielle's performance commitments, net profit after tax for 2024, 2024-2025, and 2024-2026 must not be less than 413 million yuan, 875 million yuan, and 1,394 million yuan.
Equity incentives have been implemented, demonstrating confidence in development. In 2023, the company issued a restricted stock incentive plan, with a total volume of no more than 12.9 million shares, accounting for about 0.764% of the company's total share capital, covering the company's directors/senior managers/core personnel, etc. Performance assessment goals include: the 24-26 deducted non-net profit was not less than 27.7%/33.08%/25.43% of the 2022 CAGR, respectively, that is, the 2024-26 deducted non-net profit was not less than 42.6/61.6/6.47 billion yuan.
The equity incentive goals reflect confidence in the company's future development and look forward to the smooth progress of the company's strategic goals.
Since the company's waterproofing business is showing a positive trend in revenue and profitability, the paint business is expected to unleash more potential after the acquisition of Garbo. We expect the company's EPS in 2024-2026 to be 2.54, 2.94, and 3.17 yuan/share (originally forecast 2024-2025 EPS2.40 and 2.66 yuan/share). Based on a comparable company's 2024 adjusted average valuation of 13X PE, the corresponding target price is 33.02 yuan, maintaining a “buy” rating.
Risk warning
Real estate completion showed a marked decline, the release of new production capacity fell short of expectations, the integration of waterproofing and coating businesses fell short of expectations, and the price of raw materials increased dramatically