Incident: Karen Co., Ltd. released its 2023 annual report and 2024 quarterly report. In '23, the company achieved revenue/net profit attributable to mother/net profit after deduction of 28.01/0.23/ -0.3 billion yuan, +31.6% /profit/loss reduction over the same period last year. 23Q4 achieved revenue/net profit attributable to mothers/net profit excluding non-attributable net profit of 7.2/-0.52 billion yuan, or +21.2% /loss/loss reduction over the same period last year. Furthermore, under continuous pressure on the real estate industry in 23 years, the company calculated credit impairment losses of 140 million yuan, +11% year-on-year, and the net cash flow from the company's operating activities was 190 million yuan, +315% over the same period last year. 24Q1 The company achieved revenue/net profit attributable to mothers/net profit excluding non-attributable net profit of RMB 5.28/0.08/-0.1 billion yuan, +4.1%/-499.6% year-on-year.
The increase in gross margin was compounded by a decline in the cost ratio, and profitability improved markedly: in '23/23Q4, the company's gross margin was 22%/15.9%, compared to +2.5/+0.7 pcts. The increase in gross margin was mainly due to the decline in procurement costs for raw materials such as asphalt. The 23/23Q4 sales expense ratio was 7.3%/6.8%, -0.6/-5.0 pcts year-on-year. The 23/23Q4 management fee ratios were 4.0%/5.0%, respectively, -2.4/+0.1pcts. The decline in management fee ratios was mainly due to a decrease in share payment fees. Taken together, the net sales margin reached 1.0%/-7.3% in '23/23Q4, +8.6/+23.5pcts year-on-year. In 24Q1, the company's gross margin was 21.7%, -1.0pcts; the sales/management expense ratio was 7.5%/7.0%, -0.5/+3.2pcts year-on-year, and the net sales margin was 1.7%, -5.2 pcts year over year.
Vigorously develop distribution channels and actively reduce real estate orders: In '23, the company vigorously developed the dealer model, the number of dealers increased significantly, and through channel decline, regional sales resources were rationally adjusted, and the distribution share continued to increase, and the revenue structure was optimized. At the same time, the company strengthened customer risk identification and protection measures, and actively reduced orders from some high-risk real estate customers. The share of the real estate business declined further from the rapid decline in 22 years. With continuous channel optimization, the company's net operating cash flow has increased dramatically.
Develop integrated steel-plastic composite panel systems to fill gaps in roofing system solutions: Relying on polymer industrial parks, the company pioneered the production of G and GL TPO and PVC waterproof materials. The products have obvious advantages in terms of dimensional stability, weather resistance, and wind resistance. The company produces polymer materials based on the excellent performance of imported production lines. Targeted development and integration of steel-plastic composite panel systems can fill gaps in roofing system solutions. The revenue contribution in 23 years was relatively low but the development trend is good, and it is expected to become a new growth point in the future.
Profit forecasting, valuation and rating: As real estate demand gradually bottoms out, new waterproof regulations are implemented, and channel layout is optimized, subsequent growth is resilient. Considering the smooth expansion of the company's distribution channels and the active contraction of real estate customer orders to optimize the channel structure, profits are expected to continue to improve. We adjusted the 24-25 net profit forecast to be 175/206 million yuan (up 11%/11%) and added the 26-year forecast to 223 million yuan, maintaining the “buy” rating.
Risk warning: Downstream demand is weak, raw material prices are at risk of rising, and the promotion of integrated photovoltaic roof systems falls short of expectations