Core views

The company achieved revenue of 2.34 billion yuan in the first half of 2024, up 4.7% year on year; realized net profit of 0.34 billion yuan, a year-on-year decrease of 31.2%; achieved revenue of 1.35 billion yuan corresponding to the second quarter, an increase of 0.4% year on year; realized net profit of 0.19 billion yuan, a year-on-year decrease of 41.9%.

Due to the decrease in investment income of the participating company Ningbo Dongpeng compared to the same period last year, the company's net profit declined in the first half of the year. Judging from the company's revenue split, the company's basic pipeline market remained stable. Among them, PPR pipeline revenue representing retail increased slightly. At the same time, the company actively promoted the concentric circle strategy, and revenue from products such as waterproofing and water purification achieved rapid growth.

occurrences

The company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 2.34 billion yuan, a year-on-year increase of 4.7%; realized net profit due to mother 0.34 billion yuan, a year-on-year decrease of 31.2%; and realized net profit without deduction of 0.34 billion yuan, a year-on-year decrease of 0.4%.

Brief review

Reduced investment returns dragged down second-quarter results. In the first half of 2024, the company achieved revenue of 2.34 billion yuan, a year-on-year increase of 4.7%; achieved net profit of 0.34 billion yuan, a year-on-year decrease of 31.2%; achieved revenue of 1.35 billion yuan corresponding to the second quarter, an increase of 0.4%; and realized net profit to mother of 0.19 billion yuan, a year-on-year decrease of 41.9%. The decline in the company's net profit due mainly to: 1. The company's gross margin fell 1.2 percentage points to 42.6% compared to the same period last year; 2. Investment income in the participating company Ningbo Dongpeng decreased by 0.16 billion yuan compared to the same period last year. If the influence of Ningbo Dongpeng is excluded, the company's net profit performance to mother is the same as in the same period last year.

Pipe revenue remained stable, and the “concentric circle strategy has achieved remarkable results”. In the first half of 2024, the company further increased its market share and achieved growth against the backdrop of a contraction in the overall scale of the industry. In the first half of the year, the company achieved overall pipe revenue of 1.07 billion yuan, a slight decrease of 1.3% over the previous year; of these, PPR pipe revenue, which represents retail products, was 1.073 billion yuan, an increase of 3.3% over the previous year. The gross margin of the company's pipe business increased 2.1 percentage points to 45.3% in the first half of 2024, of which the gross margin of the PPR pipe business increased 2.0 percentage points to 59.1%.

The company's other products achieved revenue of 0.463 billion yuan, an increase of 45.2% over the previous year. This is a strong reflection of the company's acceleration of the “concentric circle” strategy and actively promoting market expansion for other products such as waterproofing and water purification.

Actively promote internationalization strategies, and overseas revenue is growing steadily. In the first half of 2024, the company focused on market development in key regions and strengthened overseas business development around the “Belt and Road”. The Thai Industrial Park continued to expand surrounding markets based on the Thai market, and the quality of the Singapore Jetstream business acquired by the company also continued to improve. During the reporting period, the company's overseas business revenue reached 0.17 billion yuan, an increase of 27.4% over the previous year.

Maintain a buy rating. We forecast that the company's revenue for 2024-2026 will be 6.49/7.01/7.58 billion yuan, up 1.8%/8.0%/8.1% year on year; net profit to mother will reach 1.17/1.32/1.42 billion yuan, up -18.3%/12.8%/7.9% year on year, respectively, corresponding to current PE 14/13/12 times. We believe that although the current profitability of the company has declined in the short term due to the decline in investment income, in the long run, the company's high retail share is the cornerstone of maintaining stable performance, and a buying rating is given.

Risk analysis

1. Prices of raw materials are rising too fast. The company's main raw materials are downstream petrochemical products, and raw material costs account for about 85% of production costs. If factors such as geopolitical conflict or other emergencies cause energy prices to rise, the possibility of large fluctuations in raw material prices is not ruled out, which will have an impact on the company's gross margin.

2. The expansion of the new business fell short of expectations. Although the company's new businesses, such as indoor waterproofing, whole-house water purification, and comfortable home, have high synergy with the main plumbing industry, there are differences in product performance and business model. The company takes a long time to establish a brand in a new business field and gain consumer recognition. During this period, it will face risks caused by uncertainties in various aspects such as the market and operation.