The national leader in the paint industry, β+α creates a dual growth logic: the company emerged from retail in low-tier cities, grew larger than real estate project collection, and grew into small B and C-side channels. The company's growth logic is driven by both beta and α: the industry pattern is still scattered, and the concentration of leaders continues to increase; the company has long shaped brand awareness, insisted on channel development and empowerment, and is expected to catch up with foreign-funded enterprises with its core competitiveness and continue to increase market share.
The 2023 calculation affects the company's profit, and performance flexibility is expected to be released as risks are gradually cleared.
Repainting provides stable demand space, and increasing concentration is the general trend: ① Looking at demand: In the context of the release of demand for refurbishment and the slowdown in the growth rate of hardcover houses, the customer base is gradually shifting from the real estate side to the home improvement side; the long-term development trend of the industry is trending towards the stock era, and demand for repainting will provide stable space for downstream production. ② Look at supply: The fragmentation of the domestic paint industry is still in the integration stage. Driven by the trend of small and medium-sized enterprises speeding up clearance and domestic capital replacing foreign capital, concentration has increased to a major trend. At present, the company's market share of architectural coatings is only 7%, and CR10 is 36%. Compared with Europe/US CR10 of 76%/90%, China's leading construction coatings still have a lot of room for improvement.
Building barriers for brands, products, and channels to achieve new growth with “small B+C”: the C-side has consumer attributes, and the company builds barriers for a long time: ① Continuous brand building: continuous investment in advertising, while products and services are not inferior to foreign investment. The company immediately established a high-end environmental product image, promoted a one-stop coating business in 2016 to enhance brand awareness; ② Channel differentiation expansion: retail side and high-tier cities continued to distribute locations. As of 2024/4, the number of terminal outlets and channels was nearly 12,800, and the company empowered dealers to help grow with “quantity x quality” , the sinking channel “beautiful villages” created a differentiated breakthrough point. Small B-side, the company cuts to downstream pain points: 1) High incentives for business personnel: The small B business requires the company and dealers to work together, and the company has its own strong team responsible for communication and promotion; 2) Excellent supply capacity: product service+capacity layout+high-quality construction to create the ultimate supply capacity, which fully meets the downstream needs of Little B. In the past two years, the company transformed and developed “Little B+C”. C-end home decoration paint achieved revenue of 2.57 billion yuan in 2021, +18.21% over the same period; the number of small B-side dealers increased dramatically from 4,998 in 2020 to more than 20,000 in 2022 H1.
Investment advice: We expect the company's net profit to be 509/7.09/936 million yuan in 2024-2026, a year-on-year growth rate of 139%/39%/32%. The latest closing price corresponds to PE of 44/32/24 times, maintaining the “increase” rating.
Risk warning: industry competition intensified; raw material prices rose sharply; channel penetration fell short of expectations.