The company released its 2023 annual report & 2024 quarterly report: in 2023, it achieved revenue of 3,582 billion yuan, -3.58%; net profit to mother of 160 million yuan, or -44.32% year on year; net profit after deducting non-return to mother was 146 million yuan, or -43.87% year-on-year. Among them, 23Q4 achieved revenue of 1,006 billion yuan, +0.57% year over year, net profit to mother of 18.9845 million yuan, -63.81% year over year; net profit after deducting non-return to mother of 165.723 million yuan, -65.69% year over year. The company's gross profit margin in 2023 was 35.12%, +0.82pct year on year, net profit margin 6.52%, year-on-year -3.12pct, of which 23Q4 gross profit margin was 35.31%, +0.61 pct year on year.
The 24Q1 company achieved revenue of 579 million yuan, -13.07% year-on-year, net profit to mother of 210,894 billion yuan, or -47.82% year-on-year; net profit after deducting non-return to mother of 204.506 million yuan, or -47.90% year-on-year. The 24Q1 gross profit margin was 35.04%, -1.53pct year-on-year.
The decline in demand affected the water reducing agent business performance, and functional materials bucked the trend. In 2023, affected by many external adverse factors such as a slowdown in macroeconomic growth, declining industry sentiment, and shrinking market demand, the high-performance water reducing agents, high-efficiency water reducing agents, and functional materials businesses achieved revenue of 20.38, 1.03, and 520 million yuan, respectively, -12.14%, +4.94%, and +3.64%; in terms of sales, they were 102.18, 5.09, and 269,200 tons, respectively; in terms of price, the average unit price was -4.75%, -5.74%, respectively. 4.61%, +9.94%. In 2023, the company's average purchase prices of ethylene oxide and formaldehyde were -13.41% and -15.10%, respectively.
24Q1's high-performance water reducing agents, high-efficiency water reducing agents, and functional materials business achieved revenue of 2.83 billion yuan, respectively, -24.51%, -52.44%, and +13.07%, respectively; in terms of sales, -15.77%, -60.2%, and -0.44%, respectively, it is expected to be mainly affected by the slow pace of resumption of work after the holiday season; in terms of price, the average unit price was -10.38%, +19.51%, and +13.68%, respectively. %, -18.58%
The testing business and overseas business performed excellently. The company's high-value-added testing business still showed strong resilience in an environment of shrinking demand. In 2023 and 24Q1, other businesses (mainly testing) achieved revenue of 9.20 million yuan and 176 million yuan respectively, +15.72% and +1.80%, respectively. The company's layout in overseas regions such as the “Belt and Road” has gradually paid off. In 2023, it achieved overseas revenue of 143 million yuan, +37.00% over the same period, accounting for an increase of 1.19 pct to 4.00% in revenue. In the future, it will actively explore overseas markets such as Southeast Asia and Africa, and steadily implement and improve its overseas layout.
Expense rates increased during the period, and cash flow improved markedly. The company's expense ratio for the 2023 period was 26.49%, +2.64pct year on year. Among them, sales expenses rate/ management expenses rate/ R&D expenses rate/ financial expenses ratio were 10.47%, 8.51%, 6.06%, and 1.45%, respectively, +0.75, +1.35, +0.51, and +0.03pct year over year, respectively.
The company's net operating cash flow at the end of 2023 was 370 million yuan, +68.82% year-on-year, mainly due to a decrease in cash payments for materials purchased.
Trillions of ultra-long-term special treasury bonds and local government special bonds are expected to drive infrastructure demand. The 2024 “Report on the Work of the Government” proposes to arrange 3.9 trillion yuan of local government special bonds (an increase of 100 billion yuan over the previous year); starting this year, it is planned to issue ultra-long-term special treasury bonds for several consecutive years, earmarked for the implementation of major national strategies and security capacity building in key areas. This year, 1 trillion yuan will be issued first, which is expected to help infrastructure demand grow steadily.
Investment advice: We are optimistic that ① trillion treasury bonds and special bonds are expected to drive infrastructure demand, ② functional materials business, testing business and overseas business bucking the trend; ③ improving profit and cash flow quality. The company's net profit to the mother in 2024-2026 is estimated to be 1.88, 2.16, and 238 million yuan, respectively. The corresponding PE is 18, 16, and 14 times, respectively, maintaining the “recommended” rating.
Risk warning: Infrastructure and municipal projects fall short of expectations; real estate policies fall short of expectations; the application process of new materials falls short of expectations; risk of large fluctuations in raw material prices.