Performance is under pressure, and overseas business is expected to expand

24Q1 achieved operating income of 2,562 billion yuan, +2.83% year-on-year, and achieved net profit of 311 million yuan, or -22.6%. In the first quarter, the company vigorously expanded the ceramic machinery and accessories consumables business, accounting for more than 65% of overseas orders. However, due to a significant year-on-year decline in lithium carbonate sales prices, the investment income contributed by Lanke Lithium declined. At the same time, sales prices of overseas building materials fell and profitability declined, putting pressure on overall performance. Looking back, we believe that “going overseas” is still the core focus of the company's business. On the one hand, we judge that the overseas building materials sales business with high gross profit margin and high growth may gradually become a core variable in catalyzing the company's performance growth and valuation; on the other hand, the increase in the overseas share of the traditional building materials machinery business is also expected to drive a gradual improvement in profitability.

Building materials machinery orders have increased, and overseas building materials sales capacity continues to expand by business. 1) Building materials machinery business: benefiting from the global sales network and perfect multi-product chain support and services, 24Q1's construction ceramic machinery business orders have grown rapidly, accounting for more than 65% of total overseas orders; 2) Overseas building materials sales: affected by structural competition in the market, sales prices of ceramic tile products in some regions are under pressure, and the overall profit margin of the overseas building materials sales business has been compressed, but the company's production capacity continues to advance. The Kenyan Kisumu sanitary ware project was officially put into operation in January 2024. The Cameroonian ceramics project and the Tanzanian architectural glass project are expected to be put into operation within 24 years. The Peruvian architectural glass project and the Ivorian architectural ceramics project are progressing steadily. The Honduran ceramic project is also being planned, and subsequent revenue and profits are expected to maintain good growth; 3) In the lithium battery materials business, 24Q1's overall lithium battery material production and sales volume increased, but due to industry supply and demand relationships and price declines, the gross margin of the business is still under pressure; 4) Lanke Lithium: produced 0.87 million tons of lithium carbonate in 24Q1, sold 0.99 million tons of lithium carbonate, and 0.14 tons in inventory at the end of the period 10,000 tons, achieved operating income of 777 million yuan, and contributed 101 million yuan in investment income to Keda.

Profitability is under pressure, and cash flow has improved markedly

The 24Q1 company's gross margin was 26.8%, -5.37pct year on year, with a year-on-year expense ratio of 15.9%, and -1.9pct. Among them, sales, management, R&D, and finance expenses were 6.17%, 7.08%, 3.13%, and -0.48%, respectively, and +1.08, +1.29, +0.37, and -4.65pct, respectively. The financial expenses decreased significantly. We judge that this may be related to the narrowing of the company's exchange losses in the first quarter compared to 23Q1. Under the combined influence, the net interest rate was 15.92%, -6.53pct year over year. The net CFO of the 24Q1 company was 104 million yuan, with a year-on-year increase of 588 million yuan. The revenue ratio was +31.79 pct to 108.84% year on year, and the payout ratio was +0.9 pct to 110.11% year on year.

Optimistic about the growth of the overseas building materials sales business, maintaining the “purchase” rating. Considering the impact of factors such as increased competition for overseas building materials and the decline in the company's investment income, we expect the company's net profit to be 17.4, 19.3, and 2.24 billion yuan (previous values were 19.6, 20.8 billion yuan, 2.43 billion yuan), respectively, -17.0%, +11.4%, and +16.0% year-on-year. We continue to be optimistic about the growth of the company's overseas building materials sales business and maintain the “buy” rating.

Risk warning: Overseas competition has intensified, exchange risks, lithium carbonate prices have fluctuated greatly, and the progress of production capacity expansion falls short of expectations.