The 2023 results fell short of our expectations, and the 1Q24 results were basically in line with our expectations: 2023 revenue +16% to 2.24 billion yuan; net profit to mother -126% YoY to -45.3 million yuan, after deducting non-net profit -157% YoY to -81.9 million yuan, lower than our expectations, mainly due to the decline in gross margin exceeding expectations. 1Q24 revenue was +18% year-on-year to 450 million yuan, net profit to mother changed from profit to loss to -18.04 million yuan, and net profit after deducting non-net profit -23.45 million yuan to -31.83 million yuan year-on-year, which is basically in line with our expectations.
2023A:1) Revenue remained high, and the new business contributed most of the increase: the company's revenue continued to grow rapidly in '23: the core aluminum mold business continued to grow at a rate of +6% to 1,378 million yuan, of which overseas business was +26% to 367 million yuan, contributing to the growth of most aluminum formwork blocks; protective platforms were -2% to 198 million yuan (mainly due to new regulations affecting occupancy rates), and prefabricated prefabricated parts were +90% to 364 million yuan year-on-year. 2) Gross margin under pressure: Due to the decline in new real estate construction, the unit price of aluminum mold leasing declined, and the gross margin of the aluminum mold system was -8.8ppt to 25% year on year; the gross margin of sales of protective platforms/prefabricated prefabricates/waste was -18.5/-6.6/-8.4 ppt to -1.3%/13.6%/27% year-on-year. 3) Expense rate increase: Due to the company's increased personnel recruitment, but the core business growth rate was slow, the company's sales/management/R&D expense ratio was +0.8/+0.9/-0.7ppt to 7.4%/4.1% year-on-year. At the same time, financial expenses were +89% year-on-year to 73.33 million yuan due to the impact of convertible bonds, and credit impairment losses were 88.08 million yuan, resulting in a net interest rate of -11.2ppt to -2% year over year. 4) The number of accounts receivable days has been extended, and cash flow is under pressure: the number of accounts receivable turnover days in '23 was +54 days to 194 days, the revenue ratio was +1ppt to 78% year over year, and operating cash outflow was 475 million yuan. 5) The balance ratio increased: the balance ratio was +6.3ppt to 68% year over year, and the net debt ratio was +23ppt to 90% year over year.
1Q24:1) Revenue maintained rapid growth: 1Q24 revenue growth reached 18%, up 15ppt from 4Q23; 2) gross margin repair: 1Q24 gross margin +7.2ppt to 21.7% year over year; 3) Slight increase in cost ratio: 1Q24 expense ratio +0.4ppt to 26% year over year, with financial and management expense ratios +1.9/+1.1ppt year-on-year.
Development trends
The market cleared quickly, and the company's share increased steadily. In 2023, the holding volume of the aluminum mold industry was -8% compared to the same period, the market size decreased by 14%, the number of enterprises in the industry fell by 50%, and the market cleared rapidly; yet the company maintained good growth through regional expansion. Looking forward to the future, we believe that the company can gradually recover its profitability by improving labor efficiency, reducing costs, and actively exploring overseas.
Profit forecasting and valuation
Due to pressure on demand and prices, we cut 2024 net profit by 44% to $66 million, and introduced net profit of 2025 of $137 million. The current stock price corresponds to 2024/25e 28x/13x P/E. Considering the accelerated clean-up of the industry and the company as the industry leader, we maintained an industry performance rating, but lowered the target price by 46% to 9 yuan, corresponding to 2024/25e 33x/16x P/E, implying 22% upward space.
risks
Competitive pressure in the industry increases risk; risk of continued decline in demand; risk of rising bad accounts receivable.