Matters:
Dongfang Yuhong released its 2024 quarterly report: In 2024Q1, the company achieved operating income of 7.149 billion yuan, -4.61% year-on-year, net profit to mother of 348 million, -9.81% year-on-year, and net profit of 310 million yuan after deduction, -4.39% year-on-year.
Commentary:
Industry sentiment remained low, and Q1 revenue performance declined slightly: the company achieved operating income of 7.149 billion yuan in 2024Q1, -4.61% year over year, net profit to mother of 348 million, -9.81% year on year, net profit after deducting 310 million yuan, or -4.39% year on year. We believe that the decline in revenue and performance is mainly due to weak construction conditions in Q1 infrastructure and real estate. By the end of March, the new real estate construction area was 173 million square meters, down 28% year on year, and Q1 cement production was 337 million tons, down 12% year on year. Thanks to channel and business structure optimization, profit was restored month-on-month. The gross profit margin for 24Q1 was 29.68%, up 1 pct year over year, up more than 6 pct from month to month, and slightly higher than the gross margin level of the first three quarters of last year. There was little change on the cost side from month to month, and asphalt futures remained high at 3600-3800 yuan/ton.
The size of revenue affected the rate for the period, and the cash flow improved significantly. The company's 24Q1 net profit margin was 4.78%, -0.26pct year on year, mainly due to a decrease in revenue scale and an increase in expense ratio. The rate for the period was 20.4%, +1.07pct. Among them, the management rate, R&D rate, sales rate, and finance rate were +0.25pct, +0.32pct, +0.51pct, and -0.01pct, respectively. The period cost was 1,458 billion yuan, which was not much different from the 23Q1. Net operating cash flow was $1,889 million, +1.917 billion yuan. The net outflow was the lowest value for the same period since 2019. It was mainly due to a decrease in payment of other cash related to operating activities by 75% to $720 million. This may be due to a decrease in performance guarantees paid. The yield was 102.92%, -6.78pct year over year. Accounts receivable and notes receivable were 11.4 billion, year-on-year -800 million, and +1.3 billion month-on-month. Other non-current assets were 2.3 billion dollars, which was basically the same from month to month. The balance ratio was 40.27%, -1.47pct year over year.
Retail sales continued to increase, accounting for nearly 30%: the company's revenue in 2023 was 32.823 billion yuan, +5.15% year over year, and net profit to mother was 2,273 billion yuan, +7.16% year over year. By channel, retail channel revenue increased by 28%, accounting for 28%, gross margin of nearly 40%, engineering channels accounting for 38%, gross profit margin of 24%, direct sales business accounting for 32%, and gross profit margin of 14%.
Channel decline and multi-category expansion create long-term growth drivers. 1) Strengthen market coverage by focusing on the local market and territorial management; 2) Adhere to the C-side priority strategy: the Civil Construction Group focuses on laying out tile paving and sewing product lines, continuously cultivating wall auxiliary product lines such as reinforcing agents and putty powder, promoting the development of rubber products, incubating new categories such as hardware and pipe industry, and opening up the growth ceiling in multiple categories; 3) The B-side has achieved good results, and the sand powder business has created a new growth point.
Profit forecast and investment suggestions: Considering that new real estate construction has yet to improve significantly, and land production prices are declining, we maintain the company's 2024-2026 EPS forecast of 1.16, 1.50, and 1.85 yuan/share, corresponding to PE of 11x/9x/7x. According to the historical valuation method, considering that there is still some uncertainty in the industry, we are careful to give 15x PE in 2024, with a target price of 17.4 yuan/share, maintaining a “strong” rating.
Risk warning: The area of new real estate construction has declined sharply, and the price of raw materials has fluctuated sharply.