Q1 Profitability is under pressure due to increased demand for container paint. In the first quarter of 2024, the company achieved operating income of 302 million yuan, an increase of 31.02% year on year; realized net profit of 0.28 million yuan, a year-on-year decrease of 49.84%; mainly due to the increase in revenue due to the recovery of the container industry beginning in the fourth quarter of '23. The company's Q1 profitability was under pressure, achieving a gross sales margin of 20.37% in the first quarter, a year-on-year decrease of 16.92 pcts, mainly due to a decrease in product prices.
Demand for wind power coatings is growing steadily, and the layout of offshore wind power coatings opens up room for growth. In the first quarter of 2024, the company achieved sales revenue of 78 million yuan for wind power paint products, corresponding to sales volume of 2168.59 tons, with an average sales price of 35,800 yuan/ton. The price decreased 24.19% year on year and increased by 3.96% month on month; mainly due to the further decline in domestic wind power industry chain prices in 2024. Domestic wind power installations are growing steadily. According to CWEA data, domestic wind power added 79.37 GW of hoisting capacity in 2023, an increase of 59.3% over the previous year. The China Commercial Industry Research Institute predicts that the new hoisting capacity of wind power is expected to reach 95.70 GW in 2024, an increase of 20.57% year on year, and demand is growing steadily. The company's wind power blade coatings rank first in the domestic market, and are actively laying out the field of onshore tower and offshore tower coatings to open up room for growth.
Demand for containers is rapidly increasing, and profitability is expected to recover, benefiting from the imbalance between supply and demand for consolidated transportation. In the first quarter of 2024, the company achieved sales revenue of 218 million yuan for container coating products, corresponding to sales volume of 14,800 tons, with an average sales price of 14,800 yuan/ton. Prices fell 23.58% year on year and 1.79% month on month; due to the Red Sea incident, demand in the container industry grew rapidly in the first quarter. According to industry news, the shortage of containers has already arisen, and there are situations where boxes cannot be ordered in some regions. Mainly due to the Red Sea conflict, container turnover has been extended by at least 2 to 3 weeks compared to normal time, and the fluidity of empty containers has slowed down. The current imbalance between supply and demand is expected to lead to price increases in the container manufacturing industry, and the company's profitability is expected to pick up significantly as a paint leader in the container industry.
Lay out domestic paint replacement in the marine sector, and the product has already been sampled. Foreign-funded giants in the marine paint sector occupy the vast majority of the market share; the company lays out domestic alternatives for marine paint, accelerates classification society certification and customer recognition work, and plans to achieve business breakthroughs in the marine paint repair market in 2024 and fully deploy the new marine paint business in 2025. According to the company's announcement, the China Classification Society (CCS), the Norwegian Bureau of Shipping (DNV) and the American Bureau of Shipping (ABS) have completed on-site sampling and sealing of products such as anti-fouling paint at the bottom of the ship; classification society certification is a necessary prerequisite for the company to enter the marine coatings field. This incident marks that the company's marine paint certification has officially entered the testing process. If the final certification is completed, it will help the company explore the shipping market, expand its business scale, and have a positive impact on the development and expansion of the company's new customers and new projects.
Investment advice: We expect the company to achieve revenue of 1,888/19.01/2,453 billion yuan in 2024-2026, net profit to mother of 2.53/2.82/417 million yuan, EPS of 2.34/2.61/3.86 yuan respectively, and PE 19.55/17.58/11.86 times, with initial coverage and a “recommended” rating.
Risk warning: Container demand recovery falls short of expectations; certification progress of ship products falls short of expectations; prices of raw materials fluctuate greatly; and the competitive landscape deteriorates.