Incident: On August 23, 2024, the company released its 2024 semi-annual report. 24H1 achieved revenue of 2.343 billion yuan, +4.73% year-on-year, realized net profit of about 0.34 billion yuan, or -31.23% year-on-year, and realized net profit without deduction of about 0.34 billion yuan, or -0.37% year-on-year. Looking at a single quarter, 24Q2 achieved revenue of 1.346 billion yuan, +0.41% year-on-month, and realized net profit of about 0.186 billion yuan, -41.88% year-on-year, and +21.32% month-on-month. Net profit without return to mother was about 0.198 billion yuan, -16.85% year-on-year, and +39.20% month-on-month.
The 24H1 revenue growth rate remained resilient, and gross margin improved slightly year over year. There has been no significant improvement in the 24H1 industry, and overall real estate sales and investment are still under pressure. 24H1 real estate development investment was -10.1% year-on-year, and real estate sales/new construction started were -19.0%/-23.7% year-on-year respectively. Competition in the plastic pipeline industry is heating up, effective demand is declining, industry reshuffle is further accelerated, and competition among brand companies is becoming more intense. Despite weak demand, the company achieved contrarian revenue growth. 24H1 revenue was +4.73% to 2.343 billion yuan. We think it may be mainly due to the company focusing on key points, deepening retail, and bucking the trend to increase market share. 24H1's gross margin was about 42.11%, or +0.95pct. Profitability remained strong in the first half of the year. According to Longzhong information, PPR/PE/PVC market prices in the first half of '24 were -1.39%/+6.66%/-12.13%, respectively, and +1.52%/-0.69%/-4.16% month-on-month, respectively.
The sales expense ratio increased a lot, investment income was drastically reduced, and net profit after deducting non-return to mother fell slightly year-on-year. 1) In terms of cost ratio, the company's 24H1 expense ratio was about 24.20%, +2.53 pct year on year. Among them, sales/management/R&D/finance expenses were 15.22%/6.78%/3.23%/-1.04%, respectively, +2.80/-0.25/-0.15/+0.14pct, respectively. 2) In terms of profit margin, the company recorded investment income of about 0.144 billion yuan in 23H1, accounting for 24.95% of the total profit for the current period. The main reason was the increase in Dongpeng Heli's fair value change earnings, which significantly increased the company's current performance. However, as of 24H1, Dongpeng Holi's investment income decreased by 0.16 billion yuan compared to the same period last year, causing the company's net profit margin to mother -7.58pct to 14.50% year on year. However, after excluding non-recurring gains and losses such as investment income, the company's net profit from non-return mother fell only 0.37% to 0.37% year on year 0.34 billion yuan, net profit margin after deducting non-return to mother was about 14.49%, -0.74pct year on year.
System integration+internationalization strategy to create a new fulcrum for revenue growth. Currently, it is a critical period of real estate transformation. Through the acquisition of Zhejiang Kerui, the company has enhanced system integration design and service capabilities to form complete comfortable home system solutions such as plumbing, waterproof water purification, and heating, which is conducive to further improving the company's brand strength and household average. At the same time, the company is focusing on market development in key regions, focusing on building overseas professional teams, and strengthening business development around the “Belt and Road”, steadily and steadily advancing the pace of internationalization strategies. As of 24H1, the company's overseas business revenue reached 0.168 billion yuan, up 27.39% year on year, accounting for 7.16% of total revenue, up 1.27 pct year on year, or hedging the impact of falling domestic demand to a certain extent.
Investment advice: We believe that as the leading PPR plastic pipe retailer, the company has a solid retail foundation and is expected to strengthen its core competitiveness through increased market share and multi-category strategies. We maintain our previous profit forecast. The company's net profit for 24-26 is estimated to be about 1,485, 16.28, and 1,797 billion yuan. The current price corresponds to PE of 14.00, 12.77, and 11.57 times, maintaining a “buy” rating.
Risk warning: Economic sentiment is declining; raw material prices fluctuate greatly; integration of new businesses falls short of expectations.