Matters:
The company released the report for the third quarter of 2023: the company achieved revenue of 2,576 billion yuan in 23Q1-Q3, -5.10% year-on-year, and net profit of 141 million yuan, or -39.93% year-on-year. Q3 alone achieved revenue of 916 million yuan, -5.15% year-on-year, net profit of 44 million yuan, and net profit of 37.70% year-on-year.
Commentary:
The company's performance in the first three quarters was under pressure. The company achieved revenue of 2,576 billion yuan in the first three quarters, -5.10% year-on-year, net profit of 141 million yuan, and -39.93% year-on-year; by business, sales of high-performance water reducers/high-efficiency water reducers/functional materials were 72.79/3.75/181,900 tons, -11.32%/+1.90%/-3.81% year-on-year; respectively, it achieved revenue of 14.79/0.79/359 billion yuan, -14.56%/+13.68%/+0.39%. Looking at a single quarter, the company achieved revenue of 916 million yuan in 23Q3, -5.15% year-on-year, net profit of 44 million yuan, and net profit of 37.70% year-on-year; sales of high-performance water reducing agents/high-efficiency water reducers/functional materials were 24.31/1.28/729 million tons, respectively, achieving revenue of 507/0.26/138 million, respectively, and sales volume -18.01 %/ -14.09%/+15.35% month-on-month. The decline in sales of the company's Q3 high-performance water reducing agents has increased. We expect that it will still be mainly affected by the overall weak demand for real estate.
Gross margin improved year over year, and the decline in the sales base increased the overall cost ratio. The company's 23Q1-Q3 gross margin was 35.04%, +0.89pct year-on-year, of which Q3's gross margin for the single quarter was 33.06%, +2.40pct year-on-year; it is expected to be mainly due to a decrease in raw material prices (the company's average purchase price of ethylene oxide fell 15.73% year on year in the first three quarters). Affected by the decline in sales volume and the decline in the cost sharing base, the company's expenses rate for the first three quarters reached 25.14%, +2.21pct year-on-year; among them, the sales/management/development/development/finance expense ratio was +1.30/+0.96/-0.12/+0.07pct year-on-year to 10.52%/8.38%/4.80%/1.43%, respectively. Under comprehensive influence, the company achieved a net profit rate of 7.71% in the first three quarters, a year-on-year -2.69pct; of these, Q3 achieved a net profit margin of 7.05% in a single quarter, -1.84pct year-on-year. In terms of cash flow, the company's net operating cash flow for the Q3 quarter was 326 million yuan, an increase of 226 million yuan over the previous year, and the company's repayment situation improved markedly.
Strengthen business development efforts in the field of infrastructure engineering, and expectations for future performance recovery are strong. 1) Main additive business: The company's production capacity continues to expand. According to the company's interim report, the company's South China production base in Jiangmen, Guangdong was officially put into operation, and the national production capacity layout has been basically improved. The subsequent company plans to further supplement and expand the compound base around regional bases to expand market coverage, and market share is expected to increase further. 2) Functional materials:
Against the backdrop of real estate pressure, the company's sales volume of functional materials in the third quarter continued to expand month-on-month, and the average sales price increased steadily; we expect functional materials such as wind power grouts and crack-resistant and impermeable materials to still have strong growth potential, and the second growth curve is expected to open up.
Investment advice: The company is a leader in the water reducing agent industry. Its business development tends to be diversified and its competitive advantage is remarkable. Considering that industry demand is greatly dragged down by real estate and the company's product sales volume has declined, we adjusted the company's 2023-2025 EPS forecast to 0.49/0.70/0.92 yuan/share (the original value was 0.95/1.14/1.27 yuan/share), and the corresponding PE is 24x/17x/13x. Considering that the company's valuation center for the past three years is 20x, according to the historical valuation method, we gave the company 20x PE in 2024, corresponding to the target price of 14.00 yuan, to maintain the “recommended” rating.
Risk warning: Product prices are falling, raw material prices fluctuate, and production capacity investment falls short of expectations.