Description of the event
The company released an annual report and a quarterly report: In 2023, the company achieved revenue of about 3.1 billion yuan, about the same as the previous year, with net profit of about 60 million yuan, a year-on-year decrease of 43%, after deducting non-net profit of about 0.1 billion yuan, a year-on-year decrease of 71%. In the first quarter of 2024, the company achieved revenue of about 290 million yuan, a year-on-year decrease of 40%, attributable net profit of about -80 million yuan, and deducted non-net profit of about -90 million yuan.
Incident comments
Overall revenue remained flat throughout the year, and waterproofing grew rapidly. The company's revenue in 2023 was about the same as year on year. Among them, the revenue from architectural coatings, insulation, and waterproofing materials accounted for 69%, 22%, and 8%, respectively. The corresponding revenue growth rates were -4%, -7%, and 94%, respectively, and waterproof revenue achieved relatively rapid growth. Focusing on the architectural coatings sector, engineering paint revenue fell 6% year on year (sales increased 6% year on year); home decoration paint revenue increased 8% year on year (sales increased 14% year on year); revenue from supporting materials increased 4% year on year; revenue growth rate of home decoration paint and supporting materials was higher than that of engineering paint. The share of engineering paint revenue fell to 79%, and the architectural paint product structure was slightly optimized. The waterproof sector grew rapidly, with waterproof membrane revenue up 85% year on year (sales up 97% year on year) and waterproof coating revenue up 159% year on year (sales up 188% year on year). By channel, annual distribution revenue fell 5% year on year (accounting for about 80%), direct sales revenue increased 25% year on year, or partly due to an increase in projects such as Baojiao Building.
Overall prices were under pressure throughout the year, while the decline in raw materials was hedged, compounded by falling costs, and profitability recovered. The company's annual gross margin was about 30.5%, down 1.9 percentage points from the previous year. Among them, the gross margins of architectural coatings, energy-saving materials, and waterproof materials were 37.3%, 16.7%, and 2.2%, respectively, and +0.1, -2.3, and -5.6 percentage points, respectively. The price of engineering paint fell 11% and the price of home decoration paint fell 6% throughout the year, but the price of the main raw material emulsion also fell 11% year on year, and the price of titanium dioxide fell 14% year on year, hedging the price decline. However, the price of waterproof membrane fell 6% year on year, the price of waterproof paint fell 10% year on year, and waterproof production capacity was not fully utilized, resulting in low waterproof gross margin. The company's rate for the 2023 period was about 22.8%, down 3.2 percentage points year on year. Among them, sales, management, R&D, and finance expenses changed by -3.4, -0.2, -0.1, and +0.5 percentage points year-on-year, respectively, showing that the company continued to reduce costs and increase efficiency. The company accrued credit impairment losses of up to 780 million yuan in 2021, 110 million yuan in 2022, and 210 million yuan in 2023, which is relatively sufficient. In the end, the company's net interest rate for the full year of 2023 was about 1.9%. If credit impairment losses were added back, the net attributable interest rate was about 8%, which has returned to the middle level in history.
Furthermore, the quality of the company's operations continued to improve, achieving an operating cash flow of about 440 million yuan throughout the year, reaching the highest level in history.
The sharp decline in revenue in the first quarter may be due to the company's active restructuring and strict risk control. Revenue for the first quarter of 2023 fell 40% year on year. Among them, paint revenue fell 52% year on year, insulation revenue decreased 26% year on year, and waterproof revenue increased 11% year on year.
The volume and price of paint were under pressure in the first quarter, with engineering paint revenue falling 55% year on year (sales volume down 41% year on year), home decoration paint revenue falling 34% year on year (sales volume down 38% year on year), and revenue from supporting materials fell 43% year on year (sales volume fell 38% year on year). The factors behind the decline in volume were greater, or mainly due to the company's active contraction of real estate business and risk area business. The company's accounts receivable and notes receivable fell to 1.66 billion yuan at the end of the first quarter, as reflected by a decrease of 150 million yuan from the end of 23.
Embrace new trends and create a “second growth curve.” The company announced the establishment of a subsidiary “Skyrim Hi-Tech” to integrate superior R&D resources, actively explore cutting-edge technology, start with cutting-edge new materials and key component technologies represented by aerospace, new energy, skeletal materials and skin materials, and joint components for humanoid robots, and accelerate the cultivation of the company's second main business.
Currently, the company is still in a period of active adjustment, continuous channel optimization, strict risk control, and the construction of the three major projects is expected to bring new opportunities.
The company is expected to have net profit of 100 million yuan or 170 million yuan in 2024-2025, corresponding to 28 or 16 times the valuation.
Risk warning
1. The recovery of the real estate industry fell short of expectations; 2. Prices of raw materials fluctuated greatly.