Description of the event

The company released its 2024 quarterly report: achieved revenue of 2.56 billion yuan, a year-on-year increase of 3%, attributable net profit of about 310 million yuan, a year-on-year decrease of 23%, and deducted non-net profit of about 280 million yuan, a year-on-year decrease of 26%.

Incident comments

Machinery and equipment is the core driver of revenue growth. The company's revenue growth in the first quarter was mainly due to machinery and equipment, while overseas building materials maintained stable revenue due to falling prices. The company's gross margin was about 27%, down 5.4 percentage points from the previous year and up 3 percentage points from the previous year. It was also due to the high and low prices of overseas tiles last year. The company's rate for the first quarter was about 15.9%, down 1.9 percentage points year on year. Among them, sales, management, and R&D rates increased 1.1, 1.3, and 0.4 percentage points year on year, respectively, but the financial rate fell 4.7 percentage points year on year. The core is that short-term loans fell from 1.1 billion yuan in the same period last year to 300 million yuan this year. Furthermore, asset disposal income was about 46 million yuan, and the net investment income represented by Lanke Lithium was about 130 million yuan (186 million yuan in the same period of the previous year). The final deduction of non-net interest rate was about 10.8%, down 4.1 percentage points from the previous year. By business:

Overseas building materials: pattern optimization is a prerequisite for price increases. The production and sales volume of the overseas building materials business is expected to grow steadily. Due to the short-term impact of structural competition in the market, sales prices of ceramic tile products in some regions are under pressure, and the overall profit margin is compressed. This round of price wars continued from the second half of last year to the first quarter of this year. At present, some markets have initially raised prices, but price increases in East Africa need to be based on optimizing the market pattern. As regional concentration increases, price increases may follow up. The company has built and operated 6 production bases in 5 countries in Africa. It has 17 architectural ceramics production lines and 2 sanitary ware production lines; 3 architectural ceramics production lines and 2 glass production lines are under construction. After the current construction project is completed, it will have an annual production capacity of more than 200 million square meters of architectural ceramics, 2.6 million pieces of sanitary ware, and 400,000 tons of glass. At the same time, the company continues to explore structural opportunities in regions other than Africa. It has begun construction of glass production projects in Peru in South America, and completed research on the Central American Honduran architectural ceramics project. Related projects are being prepared.

Machinery and equipment: Overseas orders reached a new record high. Orders for the construction ceramic machinery business increased dramatically in the first quarter, accounting for more than 65% of total overseas orders, mainly benefiting from the recovery of the European economy and the strengthening of equipment advantages. We expect subsequent increases in profitability. First, the share of high-margin orders in the European market will increase, and second, the profitability of some accessories and consumables is higher. The company extended its industrial chain by investing in Guocera Kanglitai, a leading domestic company for ceramic glazes, and establishing Guangdong Kanglitai as a joint venture, and acquiring FDS, an Italian press mold company, etc., to help strengthen the global competitiveness of ceramic machinery.

Return on investment: The price of lithium carbonate fell sharply. The output of lithium carbonate products in the first quarter was about 0.87 million tons, and sales volume was about 0.99 million tons, up 607% year on year, but the average price fell from 400,000 yuan/ton in the same period last year to 80,000 yuan/ton this year, and finally achieved revenue of 780 million yuan, up 39% year on year, and net profit of 230 million yuan, down 40% year on year. The company confirmed net profit attributable to listed companies based on an indirect shareholding ratio of 43.58%. As the price of lithium carbonate falls back to a low level, it is expected that the net profit contributed by lithium carbonate will remain stable in the future, while overseas building materials and machinery and equipment will become the core performance growth point.

A pioneer in building materials production capacity going overseas. Glass fiber, cement, glass, ceramic tiles and other categories have gone overseas. The company's rapid growth in Africa stemmed from: 1) Senda Group's channel network and brand base; 2) import substitution opportunities for African ceramic tiles; 3) opportunities for African urbanization growth. The current highlights are, first, the scarce growth of overseas building materials, and the second is the expansion of the category of machinery and equipment. The net profit attributable to the company in 2024-2025 is estimated to be 1.44 billion yuan or 1.68 billion yuan, and the corresponding valuation is 13 or 11 times, which continues to be positive.

Risk warning

1. Low expectations for the company's overseas production capacity investment;

2. Competition in overseas markets has intensified.