Maintain an “Overweight” rating. The company's business model and brand premium have maintained an advantage for a long time, and shareholder returns have always led the industry. Considering that non-current items such as investment income with a certain contribution in 2023 cannot be expected to remain stable in the long term, the 2024-2026 EPS was slightly adjusted to 0.92 (-0.06), 0.99 (-0.13), 1.12 (first) yuan, but the company's long-term competitive advantage did not change, and it has always been a relatively scarce brand retail leader in the sector, so a certain valuation premium should be given, so the target price of 26.53 yuan, corresponding to 2024PE, is about 29x, maintaining an “gain” rating.
The retail advantage is expected to continue, and engineering or gradually fix the growth rate. Looking at the company's revenue trends from the company's 2024Q1 revenue performance. We estimate that the retail revenue growth rate of the 2024Q1 company should remain relatively strong. On the one hand, it benefits from subjective efforts to expand channels and expand categories. At the same time, the 2023Q1 retail side just experienced the early release of demand during the 2023Q1 promotion, so it also formed a relatively favorable growth base. We estimate that the company's overall retail growth rate in 2024 is expected to be 5%-10%. Among them, the growth rate of new categories such as waterproof and water purification is more obvious; the 2024Q1 company's engineering business may be mainly due to the combination of two major factors: demand environment and active risk control The impact is that in the long run, there is plenty of room for the company's engineering business market share to increase. In 2024H2, the company may gradually increase its business efforts and gradually recover its growth rate.
Stable cost improvement on the pricing side and optimization on the structural side. Looking ahead to the company's profitability trend from the 2024Q1 situation, the 2024Q1 company's gross profit margin was 41.48%, an increase of 4.3 pcts, which is the most significant contribution after deducting the growth rate. Among them, the cost side estimates that the procurement prices of major raw materials such as PVC and PPR have declined, and the trend of raw material concessions has been reflected starting in 2023Q4 and is expected to continue throughout 2024; on the pricing side, the company's retail business pricing mechanism is stable, the price adjustment cycle is long, the market bargaining power is strong, and cost retention is good; the high-margin retail sector of the structure-side 2024Q1 company is growing and engineering declining. This structural advantage is expected to continue throughout 2024.
Dividends continue to lead the industry, and high shareholder returns are highly sustainable. In the 2023 annual report, the company plans a cash dividend of 1,257 billion yuan, with a dividend rate of 88%. The company has been ahead of the building materials industry in terms of dividend ratio for a long time, as can be seen from the long-term dividend rate of 65%-80% in recent years. The building materials section of the 23rd Annual Report is particularly in the consumer building materials sector. A number of leading companies have enhanced shareholder reporting measures, and the company continues to lead the industry by simultaneously increasing the absolute value of dividend rates. Judging from the company's own historical dividends, the last time the dividend rate of 85% or more can be traced back to 2013. At the same time, during the 2023 annual reporting period, the company first announced the possibility of a mid-term cash dividend, proving that high cash returns are highly sustainable.
Risk warning: Macroeconomic downturn, raw material costs rising.