Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, we achieved revenue of 32.82 billion yuan, up 5.2% year on year, and realized net profit of 2.27 billion yuan, up 7.2% year on year. Among them, single Q4 revenue was 7.46 billion yuan, down 4.8% year on year, down 12.3% from Q3, and net profit to mother was -80 billion yuan, down 117.2% year on year and 107.9% year on month. In 2024, Q1 revenue was 7.15 billion yuan, down 4.6% year on year. Net profit to mother was 350 million yuan, down 9.8% year on year, and profit for the single quarter was corrected.
Mortar powder performed well, and the retail business maintained high growth. By product: 1) Waterproofing membrane revenue was 13.31 billion yuan, up 6.7% year on year, gross profit margin was 27.0%, up 1.7 pct year on year; 2) paint revenue was 9.69 billion yuan, up 13.9% year on year, gross profit margin was 37.0%, up 4.5 pct year on year; 3) Mortar powder revenue was 4.20 billion yuan, up 40.0% year on year, gross profit margin was 27.6% year on year, up 4.7 pct year on year; 4) engineering construction revenue was 3.24 billion yuan, down 26.3% year on year, gross profit margin was 14.5% year on year, up 9.0 pct year on year. Waterproof materials are still growing despite sluggish demand, and mortar powder relies on the rapid expansion of waterproof customer resources and channel collaboration. Channels: 1) Retail revenue of 9.29 billion yuan, up 28.1% year on year, revenue share increased to 28.3%, gross profit margin increased 4.6pct year on year, of which Civil Construction Group revenue was 8.18 billion yuan, +34.6% year on year; 2) Canal revenue was 12.51 billion yuan, up 22.6% year on year, revenue share increased to 38.1%, gross profit margin 23.7%, up 3.2 pct year on year; 3) Direct sales revenue of 10.37 billion yuan, down 19.6% year on year, revenue share fell to 31.6%, gross profit margin 13.6% , a year-on-year decrease of 4.4 pct. The company adheres to the retail priority strategy. By the end of 2023, the number of Civil Construction Group dealers was nearly 5,000, the number of distribution outlets exceeded 220,000, and the number of “Honggehui” members exceeded 2.7 million, and continued to strengthen cooperation with construction companies.
Project construction affected Q4 profits, and impairment dragged down overall performance. The company's gross sales margin in 2023 was 27.7%, up 1.9 pct year on year, with a net sales margin of 7.0%, up 0.2 pct year on year, including a single Q4 gross profit margin of 23.0%, a year-on-year decrease of 2.5 pct, a year-on-year decrease of 6.4 pct, net profit margin -0.9% year-on-year, and a year-on-year decrease of 12.9 pct. The Q4 gross margin reduction was mainly due to concentrated confirmation of low gross margin construction business. The decline in net interest rate was mainly due to the company's accounting for more depreciation, totaling 1.04 billion yuan for the whole year, of which single Q4 accrued a total of 1.04 billion yuan $4.3 billion.
In Q1 2024, we achieved a gross profit margin of 29.7%, a year-on-year increase of 1.0 pct, a net interest rate of 4.8%, and a year-on-year decrease of 0.3 pct. The year-on-year increase in Q1 gross margin was judged by a contraction in engineering construction revenue. The business structure was optimized. The slight decrease in net interest rate was mainly due to an increase in cost dilution due to a decrease in revenue.
The channel structure has changed, and accounts receivable have been reduced. By the end of 2023, the company's accounts receivable, notes and other accounts receivable totaled 14.26 billion yuan, a year-on-year decrease of 25.5%. The decrease in the size of accounts receivable was mainly due to an increase in the share of engineering channels and retail channels, and the company continued to strengthen the control and collection of accounts receivable. Net operating cash flow was 2.10 billion yuan, up 1.45 billion yuan year on year, of which the revenue ratio was 101.6%, the year-on-year decrease of 2.9 pct, the payout ratio was 96.7%, and the year-on-year decrease of 12.0 pct.
Investment advice: The implementation of the new waterproof regulations is expected to bring about market expansion. At the same time, changes in the channel structure and expansion of the non-waterproof business will also improve the company's operating quality, but considering weak downstream demand and the risk of impairment, we adjusted the company's profit forecast. The company's net profit for 2024-2026 is estimated to be 2.73 billion yuan, 3.17 billion yuan, and 3.55 billion yuan, corresponding to PE valuations 12, 10, and 9 times, maintaining a “buy” rating.
Risk warning: risk of falling demand, risk of credit impairment and asset impairment, risk of sharp rise in raw material prices.