The company achieved total revenue of 2,562 billion yuan in the first quarter of 2024, up 2.83% year on year; net profit to mother of 311 million yuan, down 22.60% year on year; net profit after deducting non-return to mother of 276 million yuan, down 25.70% year on year; basic EPS was 0.165 yuan/share, down 21.43% year on year; and weighted average ROE was 2.69%, down 0.82 pct year on year.

24Q1 revenue grew steadily, and investment income led to a decline in performance. In 24Q1, the company achieved net profit of 2,562 billion yuan/311 million yuan, respectively, +2.83%/-22.60% year-on-year; net profit after deduction of 276 million yuan, or -25.70% year-on-year. Among them, the company confirmed investment income of 126 million yuan in 2024Q1, -32.82% year-on-year. By business, benefiting from the global sales network, 24Q1's ceramic machinery business orders have increased dramatically, accounting for more than 65% in total; the company's overseas building materials business has grown steadily, and profit margins have shrunk in the short term due to increased competition, but the company continues to lay out multiple categories of production capacity expansion. The Kisumu sanitary ware project in Kenya has been officially put into operation at 24M1. The Cameroonian ceramics project and the Tanzanian architectural glass project are also progressing steadily. In the Honduran ceramics project, with a rich product range and an increase in production capacity, the company's local brand influence, cost advantage and scale advantage are expected to increase; in the lithium battery materials business, the industry's supply and demand conflicts are prominent, and profit margins are under pressure. The company focuses on technology optimization and cost reduction and efficiency.

Volume increases and prices have decreased, and Lanke Lithium's lithium carbonate contribution profit has decreased significantly. In 24Q1, Lanke Lithium's contribution to the company's net profit was 101 million yuan (accounting for 32% of the net profit in the consolidated financial statements), a year-on-year decline of 40%.

Excluding the combined net profit contributed by Lanke Lithium, it is estimated that Decoda's net profit to mother fell 9.99% year on year.

In terms of volume, 24Q1 Lanke Lithium's lithium carbonate production/sales volume was 0.87 million tons/0.99 million tons, up 0.24 million tons/0.85 million tons year on year; in terms of price, 24Q1 Lanke Lithium's average price of lithium carbonate was about 78,500 yuan/ton, down 80% year on year, and net profit per ton was 23,300 yuan/ton, down 92% year on year.

Profitability is under pressure, and financial expenses and cash flow control are excellent. 2024Q1, the company's gross sales margin was 26.85%, year-on-year -5.37pct, net sales margin 15.92%, year-on-year -6.53pct. In terms of expenses, the 24Q1 company's expense ratio was -1.90pct to 15.90% year-on-year; among them, sales/management/R&D/finance expenses ratios were +1.08pct/+1.29pct/+0.37pct/-4.65pct, respectively, and the financial expenses rate dropped to -0.48%. In terms of cash flow, 24Q1 net operating cash flow was 104 million yuan, +121.44% year over year.

Focus on shareholder returns and long-term incentives, and maintain a “Highly Recommended” rating. In order to further promote the development of the overseas building materials business, the company plans to jointly invest in the establishment of an employee shareholding platform with key management personnel and key employees of overseas building materials subsidiaries, and increase the capital of Guangdong Tefu International (the headquarters of the company's overseas building materials business division). The shareholding platform of the capital increase party's employees will receive 5% of the shares. In addition, the company focuses on protecting shareholders' returns, and plans to cancel 305.635 million repurchased shares (1.57% of the current total share capital) and reduce the company's registered capital accordingly. We maintain our previous profit forecast. We expect the company's 2024-2025 EPS to be 0.99 yuan and 1.15 yuan, respectively, and the corresponding PE will be 9.9x and 8.5x, maintaining the “Highly Recommended” rating.

Risk warning: sharp rise in raw material costs, new business and new market expansion falling short of expectations, overseas political risk, sharp drop in lithium carbonate prices, exchange risk.