The company released its 2024 mid-year report

24Q2 revenue was 0.149 billion, -40.4% YoY; Net Profit to Mother was 2.2655 million, -95.4% YoY; after deducting non-return net profit of 1.3592 million, -96.8% YoY;

24H1's revenue was 0.237 billion, -29.2% year over year, net profit to mother 0.5049 million, -98.8% year on year, net profit without return to mother -7.4814 million, -121.7% year on year. The decline in revenue and profit was mainly affected by factors such as the external market environment. The company's bulk business and dealer business were under great pressure to develop; in addition, seasonal recovery of production orders in the second quarter was delayed, resulting in insufficient capacity utilization in the first half of the year.

Real estate is under pressure, channels and revenue structures are actively optimized

By channel, 24H1 bulk model revenue is 0.114 billion, gross profit margin 32.31%; distribution model revenue is 0.116 billion, gross profit margin 13.49%.

In terms of bulk, the overall national new housing market is in a period of deep adjustment in 2024. The company adopted measures such as optimizing revenue structures and broadening public construction projects, increasing in-depth cooperation with large state-owned real estate enterprises and non-residential projects, expanding from traditional major business advantage regions (North China, Northeast China, East China, etc.) to southern and western regions, and actively expanding small large-scale projects with good repayment conditions through dealer channels.

In terms of distribution, consumer demand for high-end doors and windows has also weakened due to reduced renovation budgets and a decline in the overall prosperity of the home building materials industry. The company is committed to improving dealer network construction, increasing investment and trade exchange efforts, increasing the number of new businesses in key cities in Southwest China, Northwest China, South China, etc., while expanding the sinking market in traditional advantageous regions of East China and Central China, and strengthening the maintenance and operation management of new offline retail channels such as designer circles, property community procurement group purchases, and cross-industry alliances.

“Three doors and one window” bucked the trend and expanded the category. The revenue of 24H1 energy-saving aluminum-clad wooden window products was 0.186 billion, with a gross profit margin of 27.3%, and -6.5 pct; revenue from aluminum alloy window products was 0.041 billion, +3.2%, gross profit margin 3.3%, year-on-year -10.9 pcts; curtain wall and sun room revenue was 3.7453 million, -45.5% YoY, gross profit margin 12.1%, YoY -26.9 pct.

24H1 has formulated a medium- to long-term product strategy of “three windows and one door”, focusing on energy-saving aluminum-clad wooden windows, gradually expanding category boundaries, and forming a matrix around “building hole solutions” and products such as wooden windows, aluminum windows, energy-saving UPVC windows (new plastic windows), and entrance doors, curtain walls, and sun rooms to create a “unique” and “cost-effective” product differentiation competitive advantage. Currently, the company is bucking the trend and speeding up fund-raising projects for Nanjing's “0.3 million square meters of customized energy-saving aluminum alloy window project” and Harbin's “0.15 million square meter energy-saving UPVC window project” to further reduce production costs and improve the quality and delivery efficiency of terminal products.

Currently, the new plastic window category plans to include three series of products: pure plastic windows, aluminum-coated plastic windows, and aluminum-plastic inner parquet. It is planned to enter the marketing stage in the second half of 2024. Through joint production and operation of the “experimental” factory in Harbin and the “quantity” factory in Qinhuangdao, the company will focus on anchoring the mid-tier market with a wider range of needs, including renovation and urban renewal needs in large-scale business, secondary renovation in the dealer business, and the market in need of immediate replacement.

Dragged down by the external environment in the short term, waiting for improved profitability

24H1's gross profit margin of 24.0%, year-on-year -8.2pct, year-on-year net profit margin of 0.2%, year-on-year -12.6pct, sales/management/ R&D/ finance expenses 11.56%/15.29pct/-2.84%, respectively, +4.24pct/+1.16pct/+2.09pct, and external environmental disturbances such as real estate and insufficient capacity utilization will drag down the company's profit level; we expect steady expansion of the company's non-residential projects and non-advantageous regions along with stable real estate sales New production capacity continues to climb, and profitability is expected to recover steadily.

Adjust profit forecast to “gain” rating

According to the 2016 Mid-Year Report, considering that the current real estate sales environment is still weak and the recovery of the company's orders is lagging behind, we lowered our profit forecast. The company's net profit for 24-26 is 0.09/0.11/0.14 billion yuan (previous value 0.17/0.21/0.26 billion yuan), respectively. The corresponding PE is 15/12/10X, respectively, giving it an “increase in weight” rating.

Risk warning: Market competition intensifies; raw material prices fluctuate; real estate sales continue to be sluggish; new production capacity investment and category expansion fall short of expectations, etc.