Description of the event

In the first half of 2024, Jianlang Hardware achieved revenue of about 3.2 billion yuan, a year-on-year decrease of 4%, and attributable net profit of about 0.005 billion yuan, a year-on-year decrease of 62%, and a year-on-year decrease of 518% after deducting non-net profit. 2024Q2 revenue was about 1.8 billion yuan, down 8% year on year, attributed net profit of about 0.05 billion yuan, down 26% year on year, and reduced non-net profit decreased 35% year on year.

Incident comments

Revenue from door and window products was affected by the decline in completion, and revenue from new products bucked the trend. The company's revenue growth rates in the past four quarters were 2%, 1%, and -8%, respectively. The weakening revenue margin was mainly due to the gradual weakening of the completed area. By product, the company's door and window system product revenue accounted for about 51% in the first half of the year. Among them, revenue from door and window hardware and door and window accessories was 1.39 and 0.24 billion yuan respectively, down 16% and 19% year-on-year. These products are highly correlated with the construction industry's demand for completion, and revenue is under pressure. Household products and other construction hardware products are all new products developed by the company. Revenue in the first half of the year was 0.59 and 0.52 billion yuan respectively, up 14% and 17% year on year. The contrarian increase in revenue reflects the company's strong channel advantage. By market, in the first half of the year, the company's revenue from Hong Kong, Macao, Taiwan and overseas markets was about 0.36 billion yuan, up 9% year on year, accounting for about 11% of revenue, while mainland China's revenue fell 6% year on year. The increase in overseas demand partially offset the decline in revenue in mainland China. In recent years, 16 overseas warehouses have been set up to replicate China's warehousing sales overseas to respond quickly to customer supply needs.

Gross margin and expense ratios began to stabilize. The company's gross margin for the first half of the year was about 31.3%, the same as the previous year. The gross margin for the second quarter was about 31.9%, up 1.5 percentage points from month to month. The gross margin of various categories began to stabilize. Although revenue from door and window hardware systems declined year on year, gross margin remained at 40%, with a slight increase year on year. The gross margin of household products was about 29%, down 1 percentage point year on year, and the gross margin of other construction hardware products was about 17%, up 1 percentage point year on year. We judged that gross margin was relatively stable: First, door and window hardware systems are an advantage product, profitability (comprehensive gross margin ratio on the production side and channel side) remained around 40% for a long time, and the average price of raw materials for the core raw materials, aluminum alloy and zinc alloy, rose 5 percent year on year. %, 1%, the average price in the stainless steel market decreased by 15%; second, the production side of new products had a larger scale effect.

In the first half of the year, the rate was about 27.9%, up 0.4 percentage points year on year. Among them, the sales rate decreased by 0.5 percentage points year on year due to staff reduction. Currently, the company has more than 1000 domestic and foreign sales network points and a sales team of more than 6000 people.

There was a slight decrease in the cash to cash ratio, but the cash flow in the single quarter was positive. The company's 2022, 2023H, and 2024H revenue ratios were 1.01, 1.11, and 0.90, respectively. Accounts receivable and notes at the end of the interim reporting period were 3.9 billion yuan, down 0.3 billion yuan from last year's interim report, and 0.2 billion yuan higher than the end of last year. However, the pay-to-cash ratio improved significantly, partly due to the acceleration of inventory turnover. The company's inventory turnover ratio increased from 1.67 in the same period last year to 1.73 this year, or from the start of a one-stop service system for collaborative engineering projects in the first half of the year. In the end, net cash flow from operating activities in the first half of the year was -0.2 billion yuan, of which -0.6 and 0.4 billion yuan were respectively in the first and second quarters.

The company's business model is scarce, and the quality of operation is preferred during the downturn. The company focuses on the b-side market and adopts a direct sales model. Due to the capital occupation characteristics of the construction industry engineering business, revenue is constrained by external environmental funds. The company's operating cash flow in the second quarter was positive in a single quarter, which means that the company still prioritized risk reduction; at the same time, the company overcame the adverse effects of the external environment on revenue by developing new products and arranging overseas markets, but also faced conflicts between investment and output, so it continued to work to optimize efficiency. The company's net profit for 2024-2025 is estimated to be about 0.31 or 0.4 billion yuan, and the corresponding valuation is 25 or 19 times.

Risk warning

1. The real estate industry declined sharply;

2. Prices of raw materials fluctuate greatly.