Key points of investment

The company disclosed its 2023 mid-year report: achieved operating income of 1,487 million yuan, or 5.20% year-on-year; realized net profit of 39 million yuan (32 million yuan for the same period last year). Net profit after deducting net income of 32 million yuan, +2774.26% year-on-year.

The company achieved a comprehensive gross profit margin of 33.95% in the first half of 2023, +2.75 pct compared with the same period last year. On a quarterly basis, the company's gross margins in Q1 and Q2 were 35.02% and 33.43% respectively, with year-on-year changes of +2.20 pct and +3.07 pct, respectively. By product, the company's gross margins of functional building coatings, building energy-saving materials, and waterproof materials were 40.75%, 17.58%, and 4.78%, respectively, with year-on-year changes of +5.97 pct, -1.76 pct, and -4.71 pct, respectively.

The first half of 2023 achieved a net sales interest rate of 2.64%, +0.34 pct compared to the same period last year; the cost rate for the period was 24.54%, compared to -4.40 pct for the same period. The sales expense ratio was 12.53%, down 3.76 pct year on year, sales expenses -19.07%; management expense ratio was 5.68%, down 0.10 pct year on year, management expenses +3.46%; R&D expense ratio was 2.67%, down 0.70 pct year on year, R&D expenses -16.51% year on year; financial expense ratio was 3.65%, up 0.15 pct year on year, and financial expenses +9.75%;? The company's net operating cash flow for the first half of 2023 was 69 million yuan, +370 million yuan over the previous year; net operating cash flow per share was 0.16 yuan, +0.86 yuan/share compared to the end of last year.

Profit forecast and rating: We adjusted our profit forecast. We expect the company's net profit to be 205 million yuan, 256 million yuan, and 320 million yuan respectively for 2023-2025. PE corresponding to the closing price on August 25 was 20.5 million, 16.3, and 13.1x, respectively, maintaining the “increase in holdings” rating.

Risk warning: rising raw material prices, macroeconomic downturn, increased industry competition, and product price fluctuations.