The company published three quarterly reports. In the first three quarters of 2023, the company achieved revenue of 2,388 million yuan (+2.47%), net profit of 81 million yuan (+15.67%), net profit of 72 million yuan (+130.28%); in the third quarter, realized revenue of 902 million yuan (-1.73%), net profit of 42 million yuan (+11.21%), and net profit of 40 million yuan (+32.73%).

Revenue from architectural coatings remained stable, and waterproofing materials increased significantly. In the first three quarters of 2023, the company's revenue for functional architectural coatings, building energy-saving materials, and waterproof materials changed by +1.59%, -9.75%, and +83.83% year-on-year respectively. According to data from the National Bureau of Statistics, from January to September 2023, the country's real estate sales area and newly started area declined by 7.5% and 23.4%, respectively. While real estate is still in a downward trend, it is not easy for the company to maintain a stable income.

The price of raw materials fell year on year, but the sales price of the company's products fell at the same time, resulting in a decrease in gross margin in the third quarter. Judging from the procurement prices of raw materials, the company's main raw materials emulsion, titanium dioxide, polystyrene particles, resins, additives, calcium silicate boards, and pigments changed year-on-year in the first three quarters of 2023, respectively -15.33%, -18.70%, -18.52%, -22.04%, -10.96%, +0.21%, and +3.57%, showing a significant overall decline. However, due to falling costs, insufficient downstream demand, and increased competition, the sales prices of the company's main products also declined significantly year-on-year. The sales prices of the company's engineering coatings, home decoration coatings, insulation panels, and insulation materials in the first three quarters of 2023 changed -8.86%, -7.66%, -11.12%, and -13.67% year-on-year. The company's gross margin for the first three quarters of 2023 was 32.44%, up 0.65pct year on year, while gross margin for the third quarter was 29.94%, down 2.76pct year on year.

Investment suggestions: As one of the few leading architectural coatings companies listed in China, the company is continuously innovating and increasing the construction of various channels, strengthening the online marketing system, and as the concentration of the construction coating industry increases, the company's performance is expected to maintain steady growth in the future. The company's revenue for 2023-2025 is estimated to be 32.20, 3.24 and 4.349 billion yuan, respectively, and net profit of 1.36, 3.37 and 434 million yuan respectively, corresponding to PE 27.99, 11.27 and 8.76 times, respectively. First coverage, giving a “buy” rating.

Risk warning: downstream demand weakens, industry competition intensifies, raw material prices rise, etc.