Incident: The company released its 2023 annual report, achieving operating income of 32.823 billion yuan (yoy +5.15%), net profit attributable to mother of 2,273 billion yuan (yoy +7.16%), and net profit without return to mother of 1,841 billion yuan (yoy +2.05%). It is proposed to pay a dividend of 6 yuan (tax included) for every 10 shares, with a dividend payment rate of 66.47%, a significant increase of 54.73 pct over the previous year (11.74%).
The retail layout is now effective, and the new mortar powder business is growing rapidly.
In 2023, the company achieved revenue of 32.823 billion yuan (yoy +5.15%), of which Q1-Q4's revenue for each quarter was +18.80%, +3.99%, +5.41%, and -4.76%, respectively.
By channel, in 2023, retail channel revenue was 9.287 billion yuan (yoy +28.11%), accounting for 28.29% of revenue (yoy +5.07pct), of which Civil Construction Group revenue was 8.18 billion yuan (yoy +34.58%); engineering channel revenue was 12.510 billion yuan (yoy +22.58%), accounting for 38.12% (yoy +5.42pct); direct sales business revenue of 10.368 billion yuan (yoy -19.63%), accounting for 31.59% of revenue (yoy + 9.74pct). During the period, the company's C-side retail business continued to gain strength. The engineering channel strengthened market coverage and penetration rate in its regions through the development and empowerment of partners. The revenue scale achieved rapid growth, and the share gradually increased.
By product, in 2023, waterproof membrane products achieved revenue of 13.314 billion yuan (yoy +6.71%), waterproof coating revenue of 9.685 billion yuan (yoy +13.85%), mortar powder revenue of 4.196 billion yuan (yoy +40.00%), and construction revenue of 3.245 billion yuan (yoy -26.30%). The company's main waterproof business revenue grew steadily, the non-waterproof business achieved rapid growth in mortar powder revenue, and the low profit and long-term construction business continued to shrink.
Gross margin improved significantly, and surges in impairment affected the growth rate of performance.
In terms of gross margin, the company's comprehensive gross margin during the period was 27.69%, up 1.92 pct from the previous year, or due to the rapid increase in high-margin retail business revenue, and the price of asphalt, the main raw material, which was lower than the same period last year. By channel, retail channel gross profit margin was 39.42% (YoY +4.63pct), engineering channel gross margin 23.70% (YoY +3.24pct), and direct sales business gross margin 13.64% (YoY -4.44pct). By product, the gross profit margin of waterproof membrane is 27.01% (year-on-year +1.73pct), the gross profit margin of waterproof coating is 37.03% (+4.48pct year-on-year), and the gross profit margin of mortar powder is 27.56% (+4.67% year over year). Looking at the cost ratio, the company's cost rate for the period was 16.00% (-0.83 pct year on year), of which the sales/management/ financial/ R&D expense ratios were +0.56 pct/-1.06 pct/-0.39 pct/+0.06pct, respectively. Looking at impairment, the company's asset impairment and credit impairment losses during the period totaled 1,039 billion yuan (+646 million yuan year on year), accounting for 35.23% of operating profit. Under the influence of the above combined factors, the company's net sales margin during the period was 6.97% (+0.18pct year on year), and the ROE (weighted) was 8.24% (+0.27pct year on year).
Operating cash flow has improved dramatically, and waterproof leading channel optimization+category expansion have helped long-term growth. In terms of cash flow, the company's net operating cash flow during the period was 2.03 billion yuan, an increase of 221.58% over the previous year, or due to the rapid growth of retail business with good cash flow and the continuous contraction of the engineering business with long account periods. By the end of 2023, the company's notes and accounts receivable totaled $10.185 billion, down 13.47% from the beginning of the period. As a leader in the waterproofing industry, the company continues to optimize its channel structure and vigorously develops retail business centered on civil construction groups and engineering channels centered on the “partner system”. As the company continues to enhance the core competitiveness of the retail business by strengthening the brand, upgrading services, expanding the brand, and expanding channels, the C-side business can be expected to continue to grow; the company will continue to adhere to partner priorities, strengthen the promotion of new fields and products, strengthen the development of empty markets, weak markets, and non-housing markets, and further increase its market share. In addition, relying on the collaborative advantages of the main waterproof business, the company's new business, mortar powder, has grown rapidly, and in the future, multiple businesses will work together to help the company grow in the long term. In terms of overseas business, the company will be based in Southeast Asia, focus on deepening the Middle East market, and make every effort to promote overseas business layout.
Profit forecast and investment suggestions: The company's revenue for 2024-2026 is expected to be 36.037 billion yuan, 39.704 billion yuan and 43.529 billion yuan, respectively, up 9.79%, 10.18% and 9.63% year-on-year, and net profit to mother of 2.802 billion yuan, 3.201 billion yuan and 3.643 billion yuan, respectively, up 23.25%, 14.25% and 13.81% year-on-year, respectively, and dynamic PE is 12.2 times, 10.7 times and 9.4 times, respectively. The “Buy-A” rating is given, and the target price for 6 months is 16.65 yuan, which corresponds to 15 times PE in 2024.
Risk warning: downstream demand falls short of expectations; new business development falls short of expectations; market development falls short of expectations; industry competition intensifies; raw material prices have risen sharply, etc.