Key points of investment:
Kangli Elevator (002367.SZ) released its 2023 annual results report. The company achieved operating income of 5,035 billion yuan, a year-on-year decrease of 1.56%, and net profit to mother of 365 million yuan, an increase of 33.11% over the previous year.
The completion of the real estate “insurance contract building” accelerated, and the vertical elevator business grew by 14.8%. The company's 2023 annual report achieved operating income of 5.035 billion yuan, a year-on-year decrease of 1.56%. Net profit to mother was 365 million yuan, an increase of 33.11% over the previous year; after deducting non-net profit of 322 million yuan, an increase of 30.05% year on year.
By business in 2023: vertical elevators achieved revenue of 3.234 billion yuan, up 14.82% year on year, accounting for 64.22% of revenue; escalator revenue of 681 million, down 45.75% year on year, accounting for 13.53% of revenue; installation and maintenance revenue of 857 million, up 19.81% year on year, accounting for 17.01% of revenue; elevator parts revenue of 200 million, down 25.1% year on year.
Driven by real estate insurance policies, real estate completion accelerated, and the company's vertical elevator revenue in 2023 increased 14.82% year-on-year. In 2023, the company sold 33,931 vertical elevators, a year-on-year increase of 16.36%.
Escalator revenue in 2023 decreased by 45.75% compared with the same period last year, and gross margin increased by 1.24%. Mainly, rail transit project order execution cycles are long, and there are seasonal fluctuations, and revenue between reporting periods will be uneven. The revenue of the escalator business in 2022 was the highest in recent years, reaching 1,255 billion. The base is high and therefore fluctuates greatly. In 2023, the company sold 3,239 escalators, a year-on-year decrease of 30%.
The company actively goes global, deeply explores key regions abroad, and enhances channel capabilities. The company's annual overseas business achieved revenue of 299 million yuan, an increase of 15.86% over the same period last year. It performed well in the overseas high-speed elevator field, and there is still room for further expansion of the international market business.
Raw material prices declined, and the company's gross profit margin and net margin increased markedly. The company's gross margin in 2023 was 28.22%, up 4.33 percentage points year on year; net interest rate was 7.26%, up 1.9 percentage points year on year; after deducting non-net interest rate 6.39%, up 1.76 percentage points year on year. The main reason is that starting from the second half of 2022, raw material prices in the market continued to fall and gradually stabilized in the first half of 2023. Compared with the same period, the decline in raw material prices was between 15% and 20%, and the drop in raw material prices had a positive impact on the increase in the gross margin of the company's products.
By business: gross profit margin for vertical elevators in 2023 was 30.92%, up 3.54 percentage points year on year; gross profit margin for escalators was 19.75%, up 1.24 percentage points year on year; gross profit margin for installation and maintenance was 24.16%, up 1.85 percentage points year on year; gross profit margin for elevator parts was 20.45%, up 9.59 percentage points year on year.
In the context of real estate insurance, completion is still resilient. The company is in the process of ordering 7.2 billion dollars to guarantee the sustainability of operations
After the concentrated release of backlog demand in 2023, the real estate market showed a trend of high, medium, low, and stable back. The annual sales area of commercial housing was 1,117.35 million square meters, down 8.5% from the previous year; commercial housing sales were 116,62.2 billion yuan, down 6.5%.
Real estate development investment for the full year of 2023 fell 9.6% year on year, and the decline was 0.4 percentage points narrower than the previous year. The “Baojiao Building” work is progressing steadily, and the results continue to show. In 2023, real estate development companies completed a housing area of 998.31 million square meters, an increase of 17% over the previous year. According to the latest data from the National Bureau of Statistics, the cumulative production of elevators, escalators and elevators in 2023 increased by 3.9% compared to the same period last year, benefiting from the accelerated completion of “security buildings” and houses.
In the context of real estate guarantees, real estate completion is still expected to remain resilient, constituting a good demand for elevators. As of December 31, 2023, the company's active orders were $7.220 billion (total order amount of 2,219 billion yuan for each project that did not include winning the bid but did not receive a deposit).
The company has sufficient orders in hand, which guarantees the stability and sustainability of future operations.
The transformation, renewal, and maintenance of old elevators catalyzes new needs in the elevator industry. On March 13, 2024, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”. The plan proposes to support the renewal of urban infrastructure equipment.
On March 27, 2024, the Ministry of Housing, Urban-Rural Development issued the “Implementation Plan for Promoting the Renewal of Construction and Municipal Infrastructure Equipment”, which mentions: focusing on residential elevators, water supply, heating, gas supply, sewage treatment, sanitation, urban lifeline projects, energy-saving renovation of buildings, etc., to promote the upgrading of construction and municipal infrastructure equipment in a classified manner, focusing on expanding domestic demand, benefiting people's livelihood and safety, and ensuring the safe, green and intelligent operation of urban infrastructure, and promoting high-quality urban development. By 2027, equipment with poor technology, which does not meet relevant standards and specifications, and which does not meet energy saving and environmental protection standards will be upgraded according to the plan. The main ones include: upgrading old residential elevators and installing elevators in existing homes.
According to the latest data from the General Administration of Market Regulation in the company's Investor Relations Activity Record Form on April 11, 2024, by the end of 2023, there were 10.629,800 elevators in use nationwide, and 736,800 old elevators that have been in operation for more than 15 years by 2022. As the service life of elevators increases, market demand for elevator renewal will be released at an accelerated pace, and the elevator industry's stock market demand will exceed the incremental scale. Elevator transformation and renewal will clearly catalyze the needs of the industry.
The company's operation is stable, the dividend ratio and dividend ratio are high. The company operates stably and has strong profitability. Apart from the decline in business performance in 2018, it can achieve net profit of more than 200 million yuan each year. The company has retained undistributed profits and a high dividend ratio. In 2018, the company's net profit was only 15.55 million, and the retained undistributed profit dividend was 875 million yuan. The dividend ratios from 2019 to 2023 were 134.18%, 72.87%, 58.23%, 71.65%, and 76.16%, respectively, and the cumulative dividend ratio for the past 5 years was 78.74%. In 2023, the company plans to distribute a cash dividend of 3.50 yuan (tax included) to all shareholders for every 10 shares, and a total cash dividend of 279 million yuan (tax included), accounting for 76.16% of the company's net profit attributable to shareholders of listed companies for the year. Based on the closing price of April 16, 2024, the company's 2023 dividend ratio reached 5.25%. At the end of 2023, the company still had an undistributed profit of $1,033 million, and its ability to continue to pay dividends is strong.
Profit forecasting and valuation
The company is a leading domestic private elevator enterprise. Benefiting from the completion of real estate and rail transit projects and the upgrading of urban infrastructure equipment, industry demand remains steady, and the company fully benefits as a leading domestic elevator enterprise.
We forecast that the company's revenue from 2024 to 2026 will be 5.497 billion, 5.884 billion, and 6.241 billion, and net profit to mother will be 443 million, 489 million, and 521 million respectively. The corresponding PE is 12.75X, 11.54X, and 10.85X, respectively. The company's valuation is reasonable, dividends are stable, and the cumulative dividend ratio over the past 5 years exceeds 75%. The 2023 dividend rate is over 5% based on the latest closing price. The first coverage gave the company an “gain” rating.
Risk Warning: 1: Macroeconomic conditions fall short of expectations: 2: Real estate investment and completed area fall short of expectations; 3: Industry competition intensified and gross margin declined; 4: The growth rate of fixed asset investment such as infrastructure and rail transit fell short of expectations; 5: Urban elevator reform, renewal, and maintenance fell short of expectations.