Performance declined markedly, and positive production sentiment improved marginally

In '23, the company achieved operating income of 3.11 billion yuan, +0.09% year-on-year, achieved net profit of 60 million yuan, and net profit after deducting non-return to mother of 0.1 billion yuan, -71.37% year-on-year. We believe that on the one hand, gross margin declined, and on the other hand, due to the company's calculation of more credit impairment losses. On a quarterly basis, the revenue of 23Q4 and 24Q1 companies was 722 million yuan and 295 million yuan, respectively, -7.06% and -40.0% year-on-year, and net profit to mother -0.21 and -82 million yuan, respectively. Gross margin continued to be under pressure in the first quarter, and revenue declined due to a slowdown in project construction and commencement.

Recently, sales restrictions on real estate in Chengdu and Changsha have been gradually liberalized. We expect to see a recovery in real estate sales data. At the same time, the renovation of urban villages in Shanghai continues to advance, and the company is expected to continue to benefit.

The waterproof sector expanded rapidly, and volume and prices were under significant pressure in the first quarter

By business, in '23, the company achieved revenue of 20.96, 6.60, and 258 million yuan for functional architectural coatings, building energy-saving materials, and waterproof materials, respectively, of -4.01%, -7.14%, and +94.43% year-on-year respectively. In '23, the company's revenue from engineering coatings, home decoration coatings, insulation panels, waterproof membranes, and waterproof coatings was -6.15%, +7.80%, +7.79%, +7.59%, +85.45%, and +158.89%. The unit price of paint was under pressure, and the revenue of the waterproof sector achieved good growth. In 24Q1, revenue from the above materials was -54.8%, -34.03%, -30.55%, +8.05%, and +26.06% year-on-year, respectively. The first quarter was under significant pressure, and both sales volume and unit prices declined.

Profitability declined, and impairment losses dragged down performance

The company's gross margin in '23 was 30.5%, -1.88pct. Of these, functional architectural coatings, energy-saving construction materials, and waterproof materials were 37.31%, 16.69%, and 2.24%, respectively, +0.1, -2.25, -5.55pct, and 24Q1 gross margins were 19.8%, and -15.22pct year over year, profitability continued to be under pressure. The cost rate for the 23-year period was 22.83%, or -3.21pct year on year. Among them, sales, management, R&D, and finance expense ratios were -3.39, -0.16, -0.12, and +0.46pct, respectively. Financial expenses increased year-on-year due to loan interest charges after infrastructure project transformation. The cost ratio was +17.8pct year-on-year during the 24Q1 period, and expenses were not effectively diluted due to the decline in revenue. The total loss of the company's assets and credit impairment in '23 was 218 million yuan, an increase of 79 million yuan over the previous year. The net interest rate under comprehensive influence was 1.93%, -1.47 pct year on year. The net amount of the company's CFO in '23 was 438 million yuan, an increase of 113 million yuan in year-on-year inflows, mainly due to a decrease in payments for materials purchased. The pay-as-you-go ratio was -9.75pct to 104.88%, and the pay-to-cash ratio was -56.53pct yoy to 89.39%.

Optimistic about the catalyst brought about by the real estate policy and maintaining the “buy” rating

Currently, the concentration within the industry is still low. We believe that the company can rely on channel changes and risk prevention and control to continuously increase its market share. Considering that the company's profitability in 23 years was under pressure and there was a lot of depreciation, we expect the company's net profit to be 150, 2.6, and 310 million yuan in 24-26 years (the value was 290 to 370 million yuan before 24-25 years ago). Recently, favorable real estate policies have been frequent. If subsequent real estate sales data improves, then we believe that the company's performance still has a good basis for growth and maintains a “buy” rating.

Risk warning: The development of the small B business fell short of expectations, the price of raw materials rose sharply, and the decline in real estate chain prosperity exceeded expectations.