Incident: The company announced its 2023 annual report. During the reporting period, net profit attributable to mother, and net profit without return to mother were 63.78, 14.32, and 1.275 billion, respectively, -8.27%, +10.4%, and +0.53%, respectively. 2023Q4 realized revenue, net profit to mother, and net profit after deducted from mother were 26.32, 5.58, and 428 million, respectively, compared with -5.67%, +5.6%, and -19.38% year-on-year, respectively.
Incident: The company announced its 2024 quarterly report. During the reporting period, revenue, net profit attributable to mother, and net profit without return to mother were 9.97, 1.54, and 142 million, respectively. The adjusted caliber was +11.19%, -11.56%, and +37.61%, respectively.
Driven by two factors, the optimization of the channel structure and the reduction in raw material costs, the profit level increased significantly in 2023. The company's comprehensive gross margin in 2023 was 44.32%, up 4.56pcts year on year. The main driving force behind it is: 1) Real estate credit risk in 2023 is still high, capital availability for infrastructure projects is relatively average, and competitive pressure is high at low prices on the engineering side. The company actively adjusted the channel structure in order to control risk and pursue high-quality development, and the share of distribution channel revenue increased 1.52 pcts from 76.26% in 2022 to 77.78% in 2023. The profit level of the distribution channel is relatively more stable and higher, and the cash flow is better; 2) The company's strong brand, excellent service and good products have built a stable moat, and the product price side remained stable in 2023. Against the backdrop of continuous decline in raw material costs, the gross margin levels of PPR/PE/PVC products were +3.46, +3.66, and +12.56 pcts compared to 2023, respectively.
The dividends exceeded expectations, and the dividend benchmark for branded building materials companies. Since its establishment, the company has adhered to retail-based product sales channels and innovated the “Star Manager” service model to seize the profit level and cash flow quality at the consumer goods level. Since 2011, the company's dividend rate has remained above 70% for most of the time. In 2023, the company plans to distribute 1,257 billion cash dividends, and the dividend payment rate has increased to 87.79%, +14.17 pcts year on year. At the same time, the company proposed a mid-term cash dividend plan for 2024. An interim cash dividend can be made when the net cash flow from operating activities is positive, the balance of monetary funds on the book is not less than 30%, and the net profit attributable to shareholders of the listed company after deducting non-recurring profit and loss is positive. The interim cash dividend does not exceed 60% of the net profit attributable to shareholders of the listed company during the corresponding period.
The business goals for the full year 2024 are positive and promising, and Q1 welcomed a steady start. The proposed revenue target for 2024 is to reach 7.3 billion yuan, +14.46% over the same period. In the current environment where real estate sales are still under pressure and the real estate chain is sluggish, it shows the company's positive enterprising spirit. 2024Q1's revenue is +11.19% year-on-year, making a steady start to achieve the annual revenue target. In terms of profitability, 2024Q1's gross margin level is +4.3pcts compared to the same period. We expect that the proportion of retail channels will continue to increase, while the continued decline in raw material costs will also contribute to a certain extent. With rapid revenue growth and a sharp year-on-year increase in gross margin, the net profit of companies withholding non-return to mother according to the adjusted caliber was +37.61% year-on-year, and the performance exceeded market expectations.
Weixing New Materials: It has advantages in channels, brands, services, etc., and has both high value attributes and resilience to risks. The future highlights are high-quality development under two-wheel drive in retail and engineering, the concentric strategy to promote the rapid development of secondary industries such as waterproofing and water purification, and the promotion of new production capacity in Shanghai and Thailand.
1) Retail business: The market capacity is large. Although the growth rate of the retail market for new homes is slowing down, the stock market base is large and increasing. The decoration demand generated by new and second-hand housing transactions and renovation of old houses cannot be ignored. The company will continue to strengthen channels and brand image building, consolidate high-quality products and “Star Manager” service advantages, accelerate channel sinking and stock market development, and the retail market share is expected to continue to increase.
2) Engineering business: The construction engineering business strictly adheres to the risk-first concept, insists on cooperating with high-quality projects with high-quality real estate, and seizes high added value. The municipal engineering business focuses on high-value-added and high-barrier markets such as gas and urban water supply, and the engineering business will maintain steady and high-quality growth.
3) Concentric circle business: Diversified businesses such as waterproofing and water purification take advantage of Weixing's first “product+service” profit model in the retail industry. Annette and Kale waterproof position are high-end and increase the price per customer. Construction+inspection services are highly coordinated with traditional pipe “Star Manager” specialized services, and it is expected that the concentric circle product chain will be vigorously developed.
4) System integration: The acquisition of Zhejiang Kerui, an influential integrated service provider in the domestic comfort home industry, has high complementarity in the regional market and business capabilities, helping Weixing New Materials upgrade from “product+service” to “system integration+service”.
Investment advice: The company released its 2023 annual report. We introduced a profit forecast for 2026. At the same time, considering that the current downstream demand is still sluggish, and the company is in a critical period of transformation in the next 1-2 years, and expenses may increase, we lowered the 2024-2025 profit forecast. We expect net profit to the mother for 2024-2026 to be 14.62, 15.82, and 1,791 billion, respectively (15.34 billion and 17.59 billion before 2024-2025, respectively). The PE corresponding to the current stock price is 19.4, 18, and 18, respectively 15.9 times Maintain the rating as “Buy.”
Risk warning: Demand for downstream real estate falls short of expectations; expansion of new categories falls short of expectations; raw material prices fluctuate greatly; information updates are not timely; implementation of system integration strategies falls short of expectations.