Description of the event
The company released financial reports: The full year of 2023 achieved revenue of 690 million yuan, a year-on-year decrease of 23%, attributable net profit of -41 million yuan, after deducting non-net profit of -44 million yuan. In response to 2023Q4, revenue of 150 million yuan was achieved, a year-on-year decrease of 37%, attributable net profit of 57 million yuan, after deducting non-net profit of 58 million yuan. The company achieved revenue of 110 million yuan in 2024Q1, a year-on-year decrease of 14%. Net profit attributable to net profit of 0.7 billion yuan was deducted from non-net profit of 12 million yuan.
Incident comments
Local finances are under pressure, and revenue is slow to be realized. The company's annual revenue was 690 million yuan, down 23% from the previous year. Legislation was implemented in September 2021. Although the implementation of high-intensity district public construction projects is strict, local finance is under pressure, project progress is still slow, delivery has not yet begun, and at the same time, the company has shrunk some high-risk projects. By region, Yunnan Province accounts for about 29% of revenue, and about 30% in the same period last year. The four regions of Southwest China, North China, Northwest China, and Southeast China accounted for 35%, 21%, 14%, and 29% respectively. Revenue growth rates were -21%, -38%, -47%, and +26%, respectively. The new market in Southeast China grew. By product, seismic isolation revenue fell 18% year on year, and shock absorption revenue fell 33% year on year. Seismic isolation was slightly faster than shock absorption, mainly due to the company taking the initiative to reduce some of the fiercely competitive shock absorption business, and the share of the shock absorption business fell from 31% to 27%. Looking at the first quarter, the pressure on local finance continued, and the pressure to convert debt was still strong. The company's revenue for the first quarter was about 110 million yuan, down 14% year on year from a low base.
Profitability has declined significantly. The overall gross margin in 2023 was 34.6%, a year-on-year decrease of 7.7pct, mainly due to industry competition and the commissioning of the new base in Yunnan included depreciation, and the revenue scale had not yet begun. The gross margin of the company's seismic isolation products was 33.6%, down 9.6% year on year, and the gross margin of shock absorption products was 34.9%, down 3.3 pct year on year. By region, the gross margins of the four regions of Southwest China, North China, Northwest China, and Southeast China were 46%, 24%, 35%, and 25%, respectively. The year-on-year changes were -2.5, -13.9, -6.3, and -8.5pct, respectively. The advantage was that the gross margin of the Southwest region remained good. North China declined rapidly or mainly due to the centralized delivery of some low-margin LNG projects during the year. The cost rate for the full year was about 33.3%, up 11.9 percentage points from the previous year. Among them, sales, management, R&D, and finance rates changed by +3.7, +3.5, +2.9, and +1.8 percentage points, respectively, mainly due to increased cost amortization due to the decline in revenue. At the same time, credit impairment losses of about 54 million yuan were accrued throughout the year, which is close to the same level as the previous year. In the end, the company's net interest rate for the whole year was about -6.0%, down 17.4 percentage points from the previous year. Looking at the first quarter, gross margin was about 28.2%, down 9.2 percentage points year on year, up 3.5 percentage points from month to month, expense ratio about 41.1%, up 1.3 percentage points year on year, down 2.5 percentage points from month to month. In the end, net profit margin for the first quarter was about -6.8%, down 10.0 percentage points year on year.
Municipal construction has yet to pick up, and we are concerned about the release of subsequent demand. Financial pressure in the southwest and northwest regions where current legislation mainly penetrates is still high. Major chemical debt provinces are concentrated here. It is expected that demand for public construction projects may still be under relative pressure during the year. In the future, if local debt is gradually resolved, local finance gradually picks up, and public construction projects are implemented one after another, reducing the flexibility of the seismic isolation market, which is expected to be released.
The estimated net profit for 2024-2026 is 0.4, 0.8, and 140 million yuan, corresponding to the PE valuation 75, 34, and 20 times.
Risk warning
1. The recovery in municipal construction is lower than expected;
2. Competition in the building seismic insulation market has intensified.