Description of the event
Zaisheng Technology released its 2023 annual report and 2024 quarterly report: 2023 revenue of 1.66 billion yuan, an increase of 2% year on year, attributable net profit of 40 million yuan, a decrease of 75% year on year, and a decrease of 85% year on year after deducting non-net profit. 2024Q1 revenue was 340 million yuan, down 10% year on year, attributable net profit of 0.3 billion yuan, down 3% year on year, after deducting non-net profit, down 13% year on year.
Incident comments
Yuyuan environmental performance is dragging down revenue, and new products and applications are growing rapidly. The company's revenue increased 2% year-on-year in 2023, mainly due to Youyuan Environmental not being included in the scope of consolidated statements since November. After deducting the impact of Yuyuan Environmental's revenue contribution, the company achieved revenue of 1.31 billion yuan, an increase of 9% over the previous year. Annual clean air revenue was about 980 million yuan, down 4% year on year. Among them, revenue from filter materials was about 420 million yuan, down 14% year on year, mainly due to the double effect of low demand and price reduction; revenue from purification equipment and filters was about 490 million yuan, up 9% year on year. Among them, clean air equipment fell 3% year on year due to the impact of Youyuan's release, while oil filtration products achieved a good growth rate, and the company vigorously expanded the market, increasing 237% year on year. Annual energy efficiency revenue was about 650 million yuan, up 13% year on year. Among them, demand for high-efficiency inorganic vacuum insulation panels and core materials declined, achieving revenue of 160 million yuan, a year-on-year decrease of 13%, while the company actively expanded new products and applications and achieved steady growth in glass fiber cotton and VIP film products. Among them, thanks to the growth in developing green building applications and home appliance market applications, glass fiber cotton achieved revenue of 280 million yuan, an increase of 23% year on year. The new VIP film included in the consolidated scope achieved revenue of 42 million yuan.
The energy-efficient business grew rapidly in the first quarter. The company's revenue for the first quarter fell 10% year on year, and net profit fell 3% year on year, mainly as shown by Youyuan Environment. If the impact of Yuyuan Environment on the revenue and profit contributed to the company during the same period of the year is deducted, operating income increased 15% year over year, and net attributable profit increased 6% year over year. In the first quarter, the revenue of the company's high-efficiency and energy-saving insulation product series increased significantly, up 25% year on year; filter paper increased market expansion+enhanced R&D of innovative products, and revenue increased 11% year on year.
Profit from energy efficiency was under pressure, profit margins declined in stages, and stabilized in the first quarter. The company's gross margin in 2023 was about 21.9%, down 3.9 percentage points year on year. Among them, clean air gross margin was about 26.4%, down 0.9 percentage points year on year, while high efficiency and energy efficiency gross margin was about 15.0%, down 8.0 percentage points year on year, or mainly because new construction projects were put into operation but sales have not yet started. The annual expense rate was about 16.8%, down 0.7 percentage points from the previous year, but impairment increased a lot. Credit impairment losses of about 31 million yuan were calculated throughout the year, mainly due to the impact of disposing of 70% of Yuyuan Environmental's shares. Bad debt provisions were made for accounts receivable formed after the transfer. In addition, asset impairment losses of about 15 million yuan were calculated. In the end, the company's net interest rate in 2023 was about 2.3%, down 7.0% year on year. Excluding impairment, net interest rate was about 5%, down 5 percentage points year on year. Looking at the first quarter of 2024, gross margin was about 21.2%, which was stable from month to month, but it was still down 1.7 percentage points year over year. The expense ratio for the first quarter was about 14.6%, up 1.2 percentage points from the previous year. The net interest rate for the first quarter was about 9.5%, a slight increase of 0.7 percentage points over the previous year.
Focusing on material production is a future strategy to further advance technology. The company completed a 70% equity transfer in Youyuan Environment in 2023. Previously, revenue from purification equipment fluctuated along with demand for new construction of panels, pig houses, semiconductors, etc., but after excluding purification equipment, the company's revenue compound growth rate in 2018-2022 was about 15%, and the materials business showed stronger growth and competitiveness. The company will benefit from: 1) profitability and operational quality may improve; the filtration equipment business is fiercely competitive, profit margins are low, and cash flow is weak; 2) material-side sales can target more purification equipment companies and promote its material advantages to more global users.
The company's net profit for 2024-2025 is estimated to be 160 million yuan and 210 million yuan, and the corresponding valuations are 21 and 16 times, respectively.
Risk warning
1. The pace of recovery in downstream demand is lower than expected; 2. Raw materials or energy costs have risen sharply.