Report summary:
Co-Creation Turf is the world's leading artificial turf company. Co-created Turf was founded in 2004 and has always been engaged in R&D, manufacturing and sales of artificial turf. Since 2011, the company has ranked first in the world in terms of artificial turf sales for 11 consecutive years. According to global artificial turf industry data released by AMI Consulting, the company's share of global market sales reached 18% in 2021.
2024Q1 revenue performance inflection point upward. The company's revenue growth slowed in 2022 and 2023 due to local geographical conflicts, inflation in Europe and the US, and changes in raw material prices. In 2024Q1, the company's revenue also increased by 23.1% to 690 million yuan, and net profit to mother also increased by 29.4% to 120 million yuan. In terms of profitability, in 2023, the company's gross margin increased by 2.8 pct to 31.6% year on year, and net margin decreased by 0.6 pct to 17.5%; in 2024Q1, the company's gross margin/net margin was -1.8pct/+0.9pct to 30.5%/17.6% year on year, respectively, and profitability recovered.
There is a clear trend of overseas order restoration. Affected by the Russian-Ukrainian conflict and inflation in 2022, the company's artificial turf sales volume fell 2.9% year-on-year to 64.68 million square meters. In 2023, the company's sales volume has recovered significantly, with a year-on-year increase of 12.2% to 72.58 million square meters. Among them, overseas sales increased 14.7% year on year, and sales in the European region have basically returned to the level before the Russian-Ukrainian conflict. The company has formed long-term and stable cooperative relationships with customers such as major global artificial turf wholesalers and large home building materials supermarket chains, etc., and there is strong certainty that industry order repair benefits.
Global production capacity continues to expand the layout. The artificial turf industry has a high concentration of global supply, high barriers to entry, and a relatively stable competitive pattern. By the end of 2023, the company had an annual production capacity of 110 million square meters. Construction of the next 20 million square meters of the Vietnam Phase III project is expected to begin in 2024Q2, and the Mexican project still has a production capacity reserve of 16 million square meters. After completion, the production capacity reached 146 million square meters, and the overall production capacity reserves were sufficient to fully meet the growth of global customer orders and maintain the leading position in the global artificial turf industry.
Investment advice: As a leading global artificial turf company, the company's overall operation will be steady in 2023, and the American market is expected to drive rapid overall growth in 2024. Operating revenue is expected to increase 18.3%/15.6%/11.6% year over year to 29.1/33.7/3.76 billion yuan in 2024-2026, and net profit to mother will increase 20.4%/17%/14.9% year on year to 5.2/6.1/7 billion yuan. The current stock price is 24.71 yuan, which corresponds to a valuation of 19/16/14 times, maintaining its “buy” rating.
Risk warning: raw material price fluctuations, risk of international macropolitical and economic fluctuations, customer development and sales falling short of expectations, profit forecasting and valuation falling short of expectations, etc.