Incidents:
The company released its 2023 annual report on April 17. During the reporting period, the company achieved operating income of 1,176 billion yuan, a year-on-year increase of 47.19%, and achieved net profit of 778.891 million yuan to mother, turning a year-on-year loss into a profit.
Comment:
The recovery in the US real estate market helped the company increase its revenue dramatically. From the end of October to mid-November 2023, HD/Tempur, the leading real estate company in the US, rebounded 40%-50%, effectively boosting China's PVC flooring export boom. Beginning in August 2023, the month-on-month decline in exports of vinyl chloride polymer flooring products narrowed to -9.08%, and was corrected year-on-year in September. As a result, the company's main business grew significantly. During the reporting period, the company's main product, lock/regular/suspended flooring, achieved sales volume of 1278.69/282.00/2,229,000 square meters, a year-on-year change of 87.78%/11.20%/-41.42%; achieved revenue of 935/1.28/ 193 million yuan, a year-on-year change of 82.26%/11.90%/-39.88%, and performance increased significantly.
Stabilized sales prices combined with reduced costs, and product gross margin improved. During the reporting period, the gross margins of the company's locked, normal, and suspended floors were 18.77%/27.02%/1.30%, respectively. The year-on-year change was 14.62 pct/9.37 pct/12.46 pct, mainly due to declining raw material prices leading to lower costs and the fact that sales prices of superimposed products remained relatively stable. The average price of vinyl PVC in East China in 2023 was 6089.76 yuan/ton, a year-on-year decrease of 21.20%, a significant drop. At the same time, thanks to the strong stability of downstream customers, the company's product prices remained relatively stable in 2023. The unit price of suspension/lock/ordinary flooring changed 2.63%/-2.94%/0.63% year-on-year, providing room for gross margin. In addition, the share of locked/regular/suspended floor revenue during the reporting period changed +15.3pct/-3.45pct/-11.43pct compared to the previous year, and the decline in the share of low-margin suspended products contributed to the improvement of the company's gross margin.
Customer concentration increased slightly, and cooperation with major customers deepened. In 2023, VERTEX, the company's main customer, had sales of 1,025 billion yuan, accounting for 87.16% of total sales, an increase of 4.64pct over the previous year, and downstream sales were further concentrated. In order to deepen cooperation with VERTEX, the company and HMTX, the parent company of VERTEX, set up a joint venture American Flooring LLC in the US to achieve mutual benefit and win-win through equity cooperation and lay the foundation for long-term stable cooperation between the two parties.
The overseas layout continues to improve, and new momentum for performance growth can be expected. During the reporting period, the US joint venture subsidiary obtained a production and operation license and entered the production capacity climbing phase. The Mexican wholly-owned subsidiary has completed the signing of a plant lease agreement. With the successful completion of the North American production base, the efficiency and resilience of the company's supply chain will be significantly enhanced in the future, providing a solid and strong guarantee for performance growth.
The first coverage gave the company an “increased” rating. The company is expected to achieve EPS of 0.49/0.64/0.90 yuan in 2024-2026, corresponding PE of 17.77/13.59/9.74 times.
Risk warning: Overseas demand falls short of expectations, and valuation and profit forecasts fall short of expectations.