Company announcement: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 3,582 billion yuan (YoY -3.58%), net profit of 160 million yuan (YoY -44.32%), net profit of not attributable to mother of 146 million yuan (YoY -43.87%); of these, 2023Q4 achieved operating income of 1,006 billion yuan (YoY +0.57%, QoQ +9.83%), net profit attributable to mother of 19 million yuan (YoY -63.80%, QoQ -57.31%), net profit not attributable to mother of 0.17 million yuan (YoY- 65.68%, QoQ -59.39%). 2024Q1 achieved operating income of 579 million yuan (YoY -13.07%, QoQ -42.49%), net profit of 121 million yuan (YoY -47.83%, QoQ +11.09%), and net profit excluding non-return to mother of 20 million yuan (YoY -47.90%, QoQ +23.40%). The performance was basically in line with expectations.
Prices for high-performance water reduction doses fell sharply in 2023, and gross margins remained basically flat, waiting for performance requirements to be repaired. According to the company's announcement, the total production of admixtures in 2023 was 1.3431 million tons (YoY - 973,000 tons), total sales volume of 1.341,900 tons (YoY - 97,700 tons), total 2024Q1 output 21,200 tons (YoY - 26,900 tons), and total sales volume of 2021,000 tons (YoY - 35,800 tons). By sector, in 2024, high-performance water-reducing agents, high-efficiency water-reducing agents, and functional materials achieved sales of 102.2, 5.09, and 269,200 tons, respectively, of -8.59, +0.46, and -164,000 tons; the sales prices of high-performance water-reducing agents, high-efficiency water-reducing agents and functional materials were 1995, 2030, and 1932 yuan/ton, respectively, at -99.5, -96.7, and +174.8 yuan/ton, respectively. Prices of major raw materials fell, and pressure on the cost side eased. The average purchase prices of ethylene oxide and formaldehyde decreased by 13.41% and 15.10%, respectively, year-on-year in 2023. The company's gross sales margin for the full year of 2023 was 35.12%, +0.82pct year on year, 6.2pct year on year; in the first quarter of 2024, the company's gross sales margin was 35.04%, -1.53 pct year on year, net sales margin 6.21%, -2.50pct year on year.
The overseas+ high value-added technical service business is growing rapidly. According to the company's announcement, the company achieved revenue of 756 million yuan (YoY +12.25%) in the technical service business and a gross profit margin of 51.35% (YoY+1.02pct) throughout 2023, and the high-margin business maintained steady growth. Overseas, the company achieved revenue of 143 million yuan (YoY +37.00%), gross profit margin of 40.32% (YoY 0.26pct), and the overseas business maintained a high growth rate and steady gross profit margin.
Steadily expand and improve production bases across the country, and increase development efforts in the field of infrastructure engineering. At present, the company's national production capacity layout has been basically improved, laying a good foundation for the company to further cultivate the regional market and increase its national market share. At the same time, the company will further supplement and expand the compound distribution base around the regional base, expand market coverage, and improve timely response and delivery capabilities. In terms of main business, the company continues to increase its business development efforts in the field of infrastructure engineering, participating in the construction of a number of national and local key projects such as the Jiaozhou Bay Second Undersea Tunnel, Yebatan Hydropower, Xiamen New Convention and Exhibition Center, and Pinglu Canal Hub; at the same time, it has increased its investment in the energy sector and won bids for a large number of energy projects. The projects it is participating in include Sanao Nuclear Power, Lufeng Nuclear Power, Huizhou Offshore Wind Power, Zhangpu Offshore Wind Power, Malibu Hydropower, and Hunyuan Water Pumping and Storage.
Investment analysis opinion: Considering the slow recovery in demand for main products, sales of high-performance water reducing agents were lowered by 37.7% and 42.0% in 2024-2025, respectively, and net profit to mother for 2024-2025 was reduced to 230 million yuan and 260 million yuan respectively (previous values were 4.4 million yuan and 530 million yuan), and an additional net profit forecast of 290 million yuan was added to the 2026 net profit forecast. The current market value corresponds to PE 15, 14, and 12 times, respectively. Comparatively, the average PE valuation in 2024 of the company Leizhi Group and Real Madrid Technology is 16 times (Wind agrees), giving the company 16 times the 2024 PE valuation, corresponding to the current market value upward space of about 7%, maintaining a “gain” rating.
Risk warning: Prices of major raw materials have risen sharply; new construction projects have fallen short of expectations; downstream demand has declined sharply.