Incidents:
The company released its 2023 annual report, achieving full year revenue of 1,316 billion yuan, a year-on-year decrease of 11.32%; realized net profit of 384 million yuan, a year-on-year decrease of 9.06%, and the performance was in line with expectations. The company's net profit for the fourth quarter of 2023 was 104 million yuan, up 19.23% year on year, up slightly from the third quarter.
Continuing the high dividend policy, with a dividend ratio of 93% in 2023:
Since its listing, the company has continued to pay high dividends and is committed to creating value for shareholders. The company's dividend ratios in 2019-2022 were 92.68%, 92.10%, 74.01%, and 84.8%, respectively. According to the dividend plan in the annual report, the company plans to distribute a cash dividend of 10 yuan (tax included) to all shareholders in 2023, with a total cash dividend of 358 million yuan, with a dividend ratio of up to 93.2%. Based on the closing price on April 10, 2024, the dividend rate is 5.05%.
Overseas inventories are being digested, and the plastic bathroom pump sector is gradually being repaired:
Plastic bathroom pumps are the company's core products, and the downstream is basically domestic support for export. Revenue in this category fell 29.47% year on year in 2023. According to the annual report, at present, overseas customer inventories are gradually being consumed, orders are picking up, and the year-on-year decline is gradually narrowing. We expect the company's plastic bathroom pump orders to recover steadily as overseas inventories are digested and US real estate recovers. At the same time, the company continues to strengthen product research and development. In 2023, the product was certified as an energy-saving product by the Energy Star compliance standard version 3.1 jointly promoted by the US Department of Energy and the US Environmental Protection Agency. It was UL Solutions' first Energy Star certificate for water pump products in Asia, and obtained entry permits in the field of energy saving in the European and American product markets, which is conducive to continuing to explore the European and American markets.
Stainless steel pumps and general-purpose pumps are growing steadily, and equipment renewal policies are expected to continue to catalyze:
The company actively explores the domestic stainless steel pump and general pump market and broadens customer coverage through activities such as building showrooms and sales centers and holding new product launches. According to the company's annual report, in 2023, the company's general pump and stainless steel pump segment revenue increased by 24.83% and 10.47%, respectively. Recently, equipment renewal policies have been introduced frequently. For example, on April 9, seven departments including the Ministry of Industry and Information Technology and the Development and Reform Commission jointly issued the “Implementation Plan to Promote Equipment Renewal in the Industrial Sector”, which proposed “focusing on improving energy efficiency levels and promoting the upgrading of key energy equipment such as pumps in various fields”; the Ministry of Housing and Construction's “Notice on Promoting the Implementation Plan for Upgrading Construction and Municipal Infrastructure Equipment” emphasizes promoting the renewal and replacement of water pump products in the fields of water plants, sewage treatment, heating, fire protection, etc. With the advancement of equipment renewal policies, it is expected that the domestic stainless steel pump industry will accelerate its volume.
Profitability continues to increase, and production capacity reserves are sufficient:
The company has always maintained a high level of gross margin through fine management and strict cost control. In 2023, the company increased gross margin by 2.1 pct to 37.9% year-on-year through measures such as strengthening workshop site management and adjusting production pace. By category, the gross margins of stainless steel pumps, general pumps, and plastic bathroom pumps were 38.24%, 30.33%, and 38.07% respectively in 2023, up 1.85pct, 1.5pct, and 4.31pct, respectively. In addition, the company's 8 million water pump production capacity site has been built to prepare ahead of schedule for subsequent market development.
Investment advice:
We expect the company's revenue for 2024-2026 to be 1,543 billion yuan, 1,765 billion yuan, and 2.04 billion yuan respectively, with growth rates of 17.3%, 14.4%, and 13.6%; net profit of 441 million yuan, 495 million yuan, and 565 million yuan respectively, with growth rates of 14.9%, 12.3%, and 14.1% respectively; maintaining the investment rating of Buy-A, giving 18 times PE in 2024, corresponding to a 6-month target price of 22.14 yuan.
Risk warning: downstream demand falls short of expectations, market competition intensifies, raw material prices rise, overseas sales fall short of expectations, etc.