The company disclosed its 2024 quarterly report: 24Q1 achieved revenue of 2,562 billion yuan, +2.83% year-on-year, net profit to mother of 311 million yuan, -22.60% year-on-year, after deducting non-net profit of 276 million yuan, or -25.71% year-on-year. Gross profit margin 26.85%, YoY -5.37pct, month-on-month +3.04pct, net profit margin 15.92%, YoY -6.53pct, +16.87pct month-on-month.

The “Big Building Materials” global strategy gradually highlighted its advantages, helping the company increase its revenue by +2.83% year-on-year in 24Q1, thanks to the expansion of the ceramic machinery, accessories and consumables markets and overseas building materials business. Among them, ceramic machinery business orders have increased dramatically, accounting for more than 65% of total overseas orders, gradually showing the strategic advantage of globalization. The company participated in Guocera Kang Litai in 2023, acquired Italian mold company FDS, and developed the European market for accessories and consumables. Accelerate overseas layout, build Turkey's BOZUYUK factory, Indonesian subsidiary, Eastern Europe and Mexico offices, etc., and strengthen overseas service networks and spare parts supply capabilities.

Production and sales in the overseas building materials business have increased. Although structural competition in the short term puts pressure on profit margins, the production capacity, categories, and regions of the building materials business are expanding, which can gradually mitigate the short-term impact. The Kenyan sanitary ware project was put into operation in January '24. The Cameroonian ceramics project and the Tanzanian glass project are expected to be put into operation within the year. The Ivorian ceramics project and the South American Peruvian glass project are under construction, and preparations are being made for the American Honduran ceramics project. After the current construction project is completed, the annual production capacity is expected to exceed 200 million square meters of ceramics, 2.6 million pieces of sanitary ware, and 400,000 tons of construction glass.

Sales volume exceeded expectations, and Lanke Lithium continued to contribute cash flow

Keda holds a total of 43.58% of Lanke Lithium's shares, and its profit contribution is reflected in investment income. In 24Q1, Lanke Lithium contributed 101 million yuan to the company's net profit, compared with the same period last year - 67 million yuan. Lanke Lithium's technical improvement project to improve quality and stabilize production has been completed and put into operation. The lithium carbonate production capacity reached 40,000 tons/year, and production and sales both achieved year-on-year growth. In 24Q1, sales volume was 0.99 million tons, an increase of 85 million tons over the previous year. However, the average selling price of a ton of lithium carbonate in 24Q1 fell by nearly 320,000 yuan/ton compared to 23Q1, and the price dropped sharply. The market is already anticipating the impact on Keda's profits.

Cancelling shares to increase long-term investment value

The company plans to change the use of 30,563,538 shares already repurchased earlier (accounting for 1.57% of the company's total share capital, with a total repurchase payment amount of about 500 million yuan) from “for implementing employee stock ownership plans and/or share incentives” to “for cancellation and corresponding reduction of registered capital”. The cancellation of the company's shares will raise the level of earnings per share and increase the company's long-term investment value.

Investment advice: We are optimistic that the company's three major businesses, building materials, machinery, and lithium batteries, will resonate and flourish overseas. The leading position of pottery machines is stable, deepening the ceramic industry chain, going overseas to explore growth dividends, actively lay out the African ceramic industry, and expand the categories of sanitary ware and glass. At the same time, lithium battery materials and lithium battery equipment are progressing in an orderly manner, extending the lithium battery new energy business and developing new growth poles. We expect the company's net profit to be 17.3, 19.2, and 2.20 billion yuan in 2024-2026. The current price corresponds to PE of 11, 10, and 9 times, maintaining the “recommended” rating.

Risk warning: risk of too many new production lines and increased competition; risk of exchange rate fluctuations exceeding expectations; risk of rapid decline in domestic demand for building materials machinery; risk of sharp fluctuations in lithium carbonate prices