1Q23 performance is in line with our and market expectations
The company announced 1Q23 results: operating income +2.5% year on year to 4.72 billion yuan, net profit of the mother +5.6% year on year to 591 million yuan, after deducting non-net profit +4% year on year to 562 million yuan, which is basically in line with our and market expectations.
Revenue is steady, and profitability is growing steadily. 1) Some of the price increases for gypsum board have been implemented, and profitability has remained steady:
The completed area of the 1Q Bureau of Statistics was +14% year on year, but as demand for commercial building renewal is still gradually being released, we estimate that the company's 1Q23 gypsum board sales fell slightly by 2% year on year to 470 million square meters (with Taishan sales maintaining a steady rise). At the same time, the price of gypsum board was raised in February, and the overall 1Q average price may have risen slightly by 2% (but still a slight decrease of 4% year on year), making gypsum board revenue -6% year on year; 2) gross margin continues to widen:
Although the price of gypsum board fell year on year, we estimate that the gross profit margin of single flat panel increased year-on-year, making the gross margin of gypsum board +1.3ppt year on year, but since the purchase price of asphalt in the waterproof sector was still high year over year, the company's comprehensive gross margin was -1.5ppt to 26.9% year on year, gross profit -2.9% year on year to 1.22 billion yuan; 3) The cost rate for the period was diluted: the cost rate for the 1Q23 period was -1.7ppt to 10.1% year on year, mainly due to a decrease in management expenses of 1.6ppt, which was mainly due to a decrease in management expenses of 1.6ppt compared to the same period last year. The corresponding operating profit margin was +0.7ppt to 13.4% year on year; 4) Net interest rate increased steadily: the effective tax rate remained low, making the net interest rate +0.4ppt to 12.5% year over year.
The quality of management remains high. 1) Quarterly cash flow outflow: The 1Q pay-to-cash ratio was -5.5ppt to 72% year on year, mainly accounts receivable +1.55 billion yuan compared to +2.5 billion yuan compared to ++2 billion yuan, making net operating cash 100 million yuan to -317 million yuan year-on-year. We think it may be mainly due to increased development of waterproofing business; 2) The company's balance ratio in 1Q23 was only 24.4%, and interest-bearing debt was +760 million yuan over the previous month. It is still in net cash position.
Some price increases in 1Q have been implemented, and 2Q is expected to continue; the resonance between demand and costs for 2H23 is expected to drive a sharp rise in volume and price. We have seen that the company issued a price increase letter in February and it has been partially implemented, driving gypsum board gross margins and gross profit per square meter to exceed the same as last year; however, since this year, waste paper prices have continued to fall. Coupled with the decline in coal price centers, 2Q23 may exceed expectations brought about by a decline in costs. Looking ahead to 2H23, we believe that under the current trend of rapid recovery in service consumption (restaurants, hotels, etc.), commercial buildings (shopping malls, hotels) are expected to be gradually renovated or newly built, driving the restoration of demand for gypsum board. At the same time, if demand for physical consumption of 2H23 gradually recovers, the price of 2H23 waste paper is expected to rise sharply, driving the price of Beixin gypsum board to continue to rise, achieving a double resonance between rising demand and price increases driven by costs.
Profit forecasting and valuation
We keep our 2023/24 earnings forecast unchanged. The current stock price corresponds to 23/24 10.7x/9.1x P/E.
We kept outperforming the industry rating and target price of 36 yuan unchanged, corresponding to 14.5x/12.4x P/E in 23/24, implying a 36% increase.
The recovery in demand for commercial buildings fell short of expectations, price increases fell short of expectations, and the development of waterproofing business fell short of expectations.