Core views:

The company released its 2024 quarterly report. 24Q1 revenue was $526 million, -1.99% year over year, net profit to mother was 12.27 million yuan, +50.98% year over year, net profit after deduction of 1.07 million yuan, +368.56% year on year. Government subsidies and individual impairment preparations were reduced in non-recurring profit and loss.

Polymer composite finishing materials have achieved high growth, and tile fireproof panels are under demand pressure. According to the company's production and sales report, 24Q1 home decoration finishing materials/automotive interior finishing materials/film/artificial leather/fireproof board revenue was 0.6/1.0/0.1/0.4 billion yuan respectively, +28%/+27%/+16%/-39%/-36%. As a result, we estimate that tile revenue fell by 5-10%; overall, tiles and fireproof boards, which are more related to real estate, face high demand pressure. Automotive interior finishing materials continued to grow steadily, seizing the opportunities of the rapid development of the new energy vehicle market, in addition to new energy market opportunities for home decoration The material growth rate in 24Q1 exceeded expectations, or was smooth due to the expansion of orders from major customers.

Gross profit margins have been rising steadily, and expense ratios have declined. The 24Q1 gross profit margin was 21.25%, +0.25pct year on year. The increase or is related to changes in revenue structure. The gross margin of home decoration and automotive interior finishing materials that have achieved high growth is higher than other businesses; the cost ratio is 18.79%, -0.42pct, of which the sales/management/R&D/finance expense ratio was +1.44/+0.76/-1.80/-0.82pct, respectively. The increase in sales expense ratio may be due to the continuation of the more active pace of market development and channel construction since last year, the reduction in financial expenses ratio is mainly due to the decline in the scale. 24Q1 short+long-term loans amounted to 850 million yuan, year-on-year - 160 million yuan. 24Q1 consolidated net profit margin 2.45%, +0.53 pct year over year.

Increased capital turnover efficiency under the asset-light model, continued shortening of the net business cycle, and increased payment of supplier notes and employee remuneration due, affecting current operating cash flow performance.

Profit forecasting and investment advice. We expect EPS to be 0.75, 0.93, and 1.15 yuan/share in 24-26, respectively. According to the latest closing price, PE will be 12.67, 10.25, and 8.30 times, respectively. Maintaining the 24-year 15x PE judgment, corresponding to a reasonable value of 11.32 yuan/share, maintaining the “buy” rating.

Risk warning. Channel construction and expansion fell short of expectations, fluctuations in raw fuel prices exceeded expectations, and customer expansion of automotive interior finishing materials fell short of expectations.