Report summary:
A high-quality domestic paint brand enterprise, a first-class comprehensive service provider for green building materials and a better life. It was founded in 2003 and listed on the A-share main board of the Shanghai Stock Exchange in 2016. It ranked first in the paint industry in the “China Top 500 Most Valuable Brands” list in 2023, and ranked 8th in the global architectural decoration coatings ranking in 2023 and number one in China. Having experienced downward pressure from real estate demand in recent years, the company relies on its hematopoietic capacity to continuously repair cash flow and accounts receivable quality, and is actively developing diversified businesses. Lightweight construction is expected to become a comprehensive service provider for platform-based building materials.
Coatings industry: The characteristics of China's stock market are beginning to show, and the prospects are promising.
Looking back overseas, we believe that stock demand is affected by the following factors:
1. Housing age: 22+ housing age pushes into the era of inventory.
2. Explain the changes in consumption habits brought about by the age structure and the increase in housing renovation and maintenance expenses in the US.
3. High income enhances and transforms payment capacity, which has a positive impact on inventory renewal.
However, after entering the stock era, the consumer attributes of the US paint industry gradually became prominent as stocks increased, which were reflected in two aspects: enhanced brand effect and increased price voice.
On the other hand, at home, the characteristics of the housing stock era are beginning to show, and the momentum of industry demand has begun to shift.
Currently, the area of new housing construction in China has dropped significantly, and transactions in the second-hand housing market are active. From the perspective of housing age, China's housing age structure is already bordering, and first-tier cities may enter the inventory era ahead of schedule. At the same time, DIY decoration accounts for a certain proportion, and the age structure provides the foundation for housing renovation. In terms of income level, the per capita income of residents has increased to support housing renovation consumption. At the same time, China's urban renewal policy has been fully launched, which is also jointly helping to improve existing housing needs. However, in the short term, China's downstream demand is mainly for new construction projects, and the amount of recoating will gradually weaken the periodicity of paint over time. For local paint companies in China, a new retail circuit has emerged, and “product design+brand marketing” is building core competitiveness.
Three trees - Channel optimization is underway to fully meet demand and restructure the market. At present, the company is gradually reducing the company's revenue dependence on the real estate business. The company's Big B is moving forward steadily and provides a relatively stable basic market. In the future, the company will focus on small B and C side layout. Through a flat channel layout, multi-dimensional marketing matrix, and accurate positioning of “health paint”, the company will continuously empower brand upgrades and create an integrated supply platform.
The company was given an “gain” rating. Considering that downstream demand is in a weak recovery state, and the company's profit forecast is adjusted, the company is expected to achieve an EPS of 1.38/1.74/2.16 yuan in 2024-2026, which is 27/21.41/17.23 times PE.
Risk warning: Raw material price fluctuations exceed expectations, downstream real estate demand falls short of expectations, changes in the industry supply pattern, and valuation and profit forecasts fall short of expectations.