Key points of investment
Incident: The company disclosed 23H1 results: revenue +2.7% year on year to 15.30 billion yuan, and net profit to parent increased 15.3% year over year to 1.49 billion yuan.
Comment: Demand recovered, and the gross margin of the plastic pipe business was +3.6ppt to 30.0% year on year. Unfinished infrastructure and emerging demand for agricultural pipes in the first half of the year drove sales volume +13.5% year-on-year. Cost pressure eased, unit price per ton fell back, plastic pipe business revenue was -4.2% year-on-year to 12.23 billion yuan, and gross margin reached a historically good level.
Volume: Demand for unfinished infrastructure projects at the beginning of the year led to a rapid recovery in sales volume, and the company actively expanded infrastructure projects for rural revitalization. Low-base agricultural pipe sales grew rapidly, driving sales of PVC plastic pipes to increase 13.5% year on year to 940,000 tons, and sales of non-PVC plastic pipes increased 17.0% year on year to 340,000 tons.
Price & gross profit: Cost prices continued to decline. PVC prices fell about 30.4% year on year and 4.8% month on month. Compared with the high unit price base that rose due to high cost pressure in the same period last year, the average unit price per ton of PVC plastic pipes fell 2025 yuan to 7536 yuan year on year in the first half of the year, and the average unit price per ton of non-PVC plastic pipes fell 1,405 yuan to 15,353 yuan year on year. The gross profit per ton of the H1 plastic pipe business was 2,890 yuan, down 122 yuan from the previous year, and the gross margin increased to 30.0%, which is a good level in history.
The layout of home improvement boutique stores has been steadily promoted. In the first half of the year, the building materials and home furnishing business revenue was +10.0% year-on-year to 1.34 billion yuan.
The new energy business contributed 740 million yuan in revenue in the first half of the year, and its share of revenue increased to 4.8%. The company is stepping up market development and project construction for the new energy business. The production base in Wusha Industrial Park in Shunde, which has an annual production capacity of 6.4 GW of modules, was put into operation during the period. The East China Operation Center was established in February, and the first production base will soon be built in Indonesia.
The company will slow down investment in the supply chain business. In June, it was announced that Yidayun will be spun off and listed on the Hong Kong Stock Exchange. It will gradually sell overseas assets in the future to improve the company's cash flow.
H1 financial expenses increased by 270 million yuan to 5.3 billion yuan over the same period last year. In the first half of the year, the two-fee control was relatively good. The cost of selling tons and the cost of managing tons ranged from -42/-60 yuan to 468/514 yuan, respectively, over the same period last year. The company H1 increased borrowing by 2.73 billion yuan, the balance ratio fell by 0.4ppt to 62.1% month-on-month, and the proportion of the company's external debt was relatively high. The interest rate hike cycle raised the average capital cost to about 5.0%, leading to a sharp increase in financial expenses.
Net impairment of financial and contract assets of $370 million was accrued in the first half of the year, an increase of $260 million over the same period last year. An additional 1.13 billion yuan was collected from debtors during the period to invest in property. It is estimated that large-scale real estate-related accruals and debt settlement have basically been completed.
During the period, Keda Manufacturing's holdings were increased to 7.01%. The increase accounted for a year-on-year increase of 80 million yuan to 140 million yuan in the profits of the joint venture. In the future, the company will strengthen business collaboration with Keda Manufacturing to jointly explore overseas markets in Africa.
Our opinion: Plastic pipelines are a type that benefits both infrastructure and construction. We are optimistic that the finished end will continue to pick up and support demand throughout the year; at the same time, the company will continue to promote intelligent upgrades to reduce costs and increase efficiency, actively explore regions outside of South China and overseas markets, and expand to new fields such as agricultural pipes to open up development space. We adjusted the company's profit forecast. We estimated that the company's net profit for 23/24/25 would be $28.95/3197/3,549 billion, respectively, at +15.0%/+10.4%/+11.0% year-on-year, with a target price of HK$5.60, maintaining the “buy” rating.
Risk warning: Economic fundamentals are declining, raw material prices fluctuate sharply, and infrastructure investment falls short of expectations.