Description of the event
The company released its semi-annual report for 2023: achieved revenue of 15.297 billion yuan, an increase of 2.7% over the previous year; realized net profit of 1,436 million yuan, an increase of 10.1% over the previous year.
Incident comments
Building materials, homes and new energy sources have continued to grow. While real estate pressure is still high, it is invaluable that the company still achieved a revenue growth rate of 2.7% in the first half of the year. By sector, the core business, plastic pipelines, declined by 4.2%, building materials and furniture increased by 10%, and other businesses increased by 89.8% (increase in photovoltaics, etc.), accounting for 80%, 8.8%, and 11.2% of revenue, respectively. Looking at the volume and price breakdown of pipe products, sales volume increased 13.9% in the first half of the year (PVC and non-PVC pipes increased by 12.9% and 17.0%, respectively), and sales prices fell 15.9% year on year (PVC and non-PVC pipes decreased by 21.2% and 8.4%, respectively). Looking at the subregion, the increase was mainly due to a 2.0% year-on-year increase in markets outside of South China, and a 10% decline in the core South China region; by pipeline product, water supply, drainage, and power pipes in pipelines fell by 2.7%, 7.6%, and 13.4%, respectively, and gas increased by 18.6%.
Raw materials have declined, and profitability has rebounded. The gross margin increased by 1.3 pct to 27.8% year on year in the first half of the year, mainly due to a drop in the prices of raw materials such as PVC. The gross profit margin of the pipeline business in the first half of the year was 30.0%, an increase of 3.6 pct over the previous year. PVC and non-PVC pipes declined, but raw materials fell even more. The rate during the period was 17.7%, a slight increase of 0.4 pct over the previous year, and remained stable; in the end, the net attributable interest rate was 9.4%, an increase of 0.6% over the previous year.
The main business continues to grow, and channel resources are monetized. As a pipe leader, we have relied on years of accumulation to establish a strong alpha with scale and channel as the core. In the future, the concentration of the industry will continue to increase, benefit from steady growth and strength, and the total volume of the industry may expand in stages. In addition, the company is committed to building a comprehensive platform for home furnishings. The building materials and home furnishing business has expanded rapidly in recent years, and the share of non-PVC pipes in the main pipe industry has also continued to increase.
Enter photovoltaics and open up new space. In January 2022, the company established Guangdong Liansu Banhao to enter distributed photovoltaics. At the end of 2022, Liansu Banhao participated in the construction of 90 photovoltaic projects, invested in 16 power plants, installed capacity of 12.5 MW, and achieved revenue of 589 million yuan in 2022. In the first half of 2023, revenue from the new energy business was RMB 739 million, accounting for 4.8% of revenue. Furthermore, Liansu New Energy's production base in Wusha Industrial Park in Shunde has already been put into operation. In February of the same year, the East China Operation Center was established in Suzhou to accelerate the deployment of new energy business. Liansu New Energy's first overseas production base will also soon be built in Indonesia. At that time, Liansu New Energy's photovoltaic module production capacity will be further increased, and new overseas markets will also be opened up.
Profitability restoration, low valuation and high cost performance. The company accounts for a high proportion of business projects but is mainly channel-oriented. On the one hand, it has excellent cash flow performance; furthermore, after the price of raw materials falls year on year, the company's past strong cost transmission capacity is expected to be reflected, and gross margin is expected to recover.
After fully calculating last year's special impairment, etc., the company went into battle lightly. It is estimated that the performance in 2023 will be 3.2 billion dollars, and PE will be 3.8 times higher.
Risk warning
1. The price of raw materials has risen sharply;
2. The growth rate of real estate sales declined sharply.