Incident: Mona Lisa completed the distribution of equity for the year 2023. The company's actual total cash dividend this time was 123 million yuan (tax included). The company achieved net profit of 266 million yuan in 2023, so the cash dividend ratio reached 46%, a record high since listing.

Raising the dividend ratio is in line with the new “Nine National Rules” policy orientation. On April 12, 2024, the State Council issued “Certain Opinions on Strengthening Supervision and Risk Prevention and Promoting High-Quality Development of the Capital Market” to strengthen the supervision of cash dividends of listed companies, attach importance to shareholder returns, and share development results with investors. We believe that in the future, companies with high profit quality, growth value, development potential and sustainable profitability will be more favored by the market. In this context, Mona Lisa increases the dividend ratio, which is conducive to the discovery of long-term investment value.

Completion data began to come under pressure, and demand for ceramic tiles showed a downward trend. Thanks to policies such as building insurance, completion in 2023 showed a good trend. However, demand-side pressure for completion may begin to show in '24. With the release of the backlog of demand in the early stages, the completion data weakened somewhat. From January to May 2024, the completed area of houses was 220 million square meters, down 20.1% from the previous year. According to data released by the China Building Sanitary Ceramics Association, in 2023, the country's ceramic tile production continued its downward trend, reaching 6.73 billion square meters, down 8.0% year on year.

Distribution channels are gradually gaining strength, and we expect an increase in market share. Faced with downward pressure from the industry and continued exposure of engineering risks, the company continued to optimize its sales structure and further improved its dealer channel network. In 2023, the company's distribution business revenue increased by 6.2%, accounting for 64.6% of total revenue; revenue from strategic engineering business decreased by 20.2%, accounting for 35.4% of total revenue. The company currently has four production bases, with an output of about 150 million square meters in 2023. The market share is not high, and there is still plenty of room for improvement in the future.

The company has gradually adjusted its channel structure and gradually improved its distribution business. Under downward pressure from the industry, the clearance of small and medium-sized enterprises may accelerate, and the company's market share is expected to continue to increase. Due to the gradual onset of industry demand pressure, we have lowered the company's product price and sales expectations. We expect the company's EPS to be 0.73, 0.84, and 0.93 yuan/share in 2024-2026 (originally forecast EPS 1.41 and 1.63 yuan/share in 2024-2025). Refer to comparable companies to give the company 14X PE in 2024, with a corresponding target price of 10.22 yuan, maintaining a “buy” rating.

Risk warning

The decline in real estate completion exceeded expectations, increased production capacity absorbed risks, ceramic tile prices fell short of expectations, and the risk of fluctuating raw material prices