Incident: On April 26, 2024, the company released its report for the first quarter of 2024. In 24Q1, the company achieved revenue of about 5.944 billion yuan, +24.62% year-on-year, realized net profit of about 822 million yuan, +38.11% year-on-year, and realized net profit without return to mother about 791 million yuan, or +40.68% year-on-year.
Increased sales led to a contrarian increase in revenue, and gross margin improved year over year. Overall sales and investment in real estate fundamentals remained under pressure in 24Q1. According to the National Bureau of Statistics, the country's real estate development investment fell 9.5% year on year from January to January '24, while real estate sales/new construction fell 19.4%/27.8% year on year, respectively. Although the industry was under pressure, the company bucked the trend and achieved a year-on-year increase of 24.62% in revenue to 5.944 billion yuan, mainly due to increased sales of products such as gypsum board. The 24Q1 company's gross margin was about 28.65%, +1.69pct year over year, up 1.67pct from 23Q4. We think it may mainly benefit from the reduction in raw materials and energy costs such as surface protection paper, thermal coal, asphalt, etc. The 24Q1 domestic waste yellow paper/ thermal coal/asphalt prices were -6.14%/-20.12%/-4.70%, respectively, -3.18%/-5.84%/-0.48% month-on-month, respectively. We believe that currently is a critical period of real estate chain transformation. Demand is gradually shifting to the stock market, and retail demand is gradually being released. The company's core business gypsum board leading advantage is stable. In '23, the company achieved sales volume of about 2,172 billion square meters of gypsum board, with a market share of about 67.64%. Expanding the gypsum board+ business is expected to further develop synergetic advantages to strengthen the competitiveness of leading companies.
Expense rates increased slightly year-on-year, and improved net profit margins highlighted strong profitability. The 24Q1 company's expense ratio was about 13.43%, up 0.24pct year-on-year. Among them, the sales/management/ R&D/ finance expenses rates were 4.94%/4.67%/3.57%/0.24%, respectively, +0.57/-0.65/+0.49/-0.17pct, respectively. The increase in sales expenses was mainly due to increased labor costs, compounded by the higher sales expense ratio of the new merger and acquisition subsidiary Gabrielle. 24Q1 The company's credit and asset impairment losses were approximately $1,213,900, or -44.16% year-on-year, mainly due to the subsidiary's recovery of accounts receivable to offset bad debt preparations. Taken together, the company's 24Q1 net profit was +38.11% to 822 million yuan, with a net profit margin of 13.83%, +1.35pct year-on-year, +40.68% year-on-year to 791 million yuan, net profit without non-return to mother about 13.31%, +1.52pct year-on-year, 24Q1 operating cash flow -26 million yuan, +91.52% year-on-year, mainly due to an increase in net cash flow from the new merger and acquisition of Gabrielle's operating activities.
The two-wing business is advancing at an accelerated pace, and new waterproof production lines have been built to improve the business layout. According to the company's foreign investment announcement in April '24, the company plans to invest in the construction of a thermoplastic polyolefin (TPO) waterproof membrane production line with an annual output of 4 million square meters and a waterproof mortar production line project with an annual output of 50,000 tons in Quanjiao County, Chuzhou City, Anhui Province. After completion, it will mainly radiate regions such as Anhui, Jiangsu, Zhejiang, Shanghai and southern Shandong Province. The company estimates that the total investment of the project is 143 million yuan, with an internal rate of return of about 13.39%. The project is conducive to further improving the production capacity layout of the waterproof business and improving the competitiveness of the waterproof business in the target region. At the same time, the company announced adjustments to the total investment amount of the 30 million square meter paper gypsum board production line project in Dongfang City, Hainan Province. The project is conducive to speeding up the company's gypsum board production capacity layout across the country, reducing gypsum board manufacturing costs, and reducing the logistics radius of raw materials and finished products, thereby enhancing the company's overall competitive advantage.
We believe that the company is actively promoting the “one, two wings, global layout” strategy to save energy for medium- to long-term growth, and that both wings of the business have achieved a good business foundation. In '23, the company's waterproof membrane/ waterproof engineering achieved revenue of about 2,786/448 million yuan, respectively, and the paint business achieved revenue of about 968 million yuan, +22.38% year over year. Among them, the paint business made significant progress in 23 years. The industrial coatings sector completed the share transfer of lighthouse coatings, consolidating its dominant position in aerospace and other application fields while focusing on market segments such as wind power blades, industrial anticorrosion, and high-end equipment machinery; the architectural coatings sector acquired Gabaoli to reinforce the competitive advantage of the architectural coatings retail market.
Investment advice: The company's gypsum board+ main business leader advantage is stable, and the waterproof and coating business is advancing at an accelerated pace. The performance assessment target growth rate of the recently implemented equity incentive plan has exceeded expectations, demonstrating confidence in the long-term operation of the company and business.
We expect the company's net profit to be 44.30, 53.23, and 6.026 billion yuan respectively in 24-26, and the PE corresponding to the current price is 11.47, 9.55, and 8.43 times, respectively, to maintain a “buy” rating.
Risk warning: Infrastructure and municipal investment growth fell short of expectations, real estate investment fell beyond expectations, raw material prices rose sharply, and acquisitions and subsequent consolidation fell short of expectations.