The company achieved total operating income of 3.110 billion yuan in 2023, an increase of 0.09%; net profit after deducting pre- and backward net profit of 60.1756 million yuan/10.298 million yuan, respectively, a year-on-year decrease of 43.09%/71.37%; the basic EPS was 0.14 yuan/share, a year-on-year decrease of 44.00%; and the weighted average ROE was 3.46%, a year-on-year decrease of 2.86pct.

The first quarter of 2024 achieved total operating income of 295 million yuan, a year-on-year decrease of 40.00%; net profit after deducting pre- and post-return net profit losses of 81.770.31 million yuan, and 23Q1 were losses of 15.9609 million yuan/18.8877 million yuan respectively, further expanding losses; basic EPS was -0.19 yuan/share; weighted average ROE was -4.81%, a year-on-year decrease of 3.87 pct.

The 23-year results were affected by the calculation, and the waterproofing business began to expand. In 2023, the company achieved total operating income of 3.110 billion yuan, an increase of 0.09% over the previous year; net profit after deducting pre- and backward net profit of 60.1756 million yuan/10.298 million yuan respectively, a year-on-year decrease of 43.09%/71.37%, mainly due to the company's 23-year accrued credit impairment losses of 207 million yuan, an increase of 83% over the previous year. By product, the company's revenue for functional architectural coatings in '23 was 2,096 billion yuan, down 4.01% year on year; revenue from energy-saving building materials was 660 million yuan, down 7.14% year on year; revenue from waterproof materials was 258 million yuan, a sharp increase of 94.43% year on year; and revenue from engineering construction was 397.557 million yuan, a sharp increase of 119.60% year on year. By channel, the company's distribution/direct sales revenue in '23 was 2,454 billion yuan/600 million yuan, respectively, -4.65%/+25.48% compared with the same period last year.

Price competition has intensified the decline in profit margins, and costs are well controlled. In 2023, the company's gross and net sales margins were 30.52%/1.93%, respectively, -1.88pct/-1.47pct year-on-year, respectively. By product, the gross margin of functional architectural coatings was 37.31%, +0.10pct; the gross margin of energy-saving building materials was 16.69%, -2.25pct; the gross margin of waterproof materials was 2.24%, -5.55pct; the gross margin of engineering construction was 7.12%, +3.14pct; the sales prices of the company's main products all declined year on year, and the average unit price of engineering coatings/home decoration panels/insulation materials in 2023 was -11.18%/-5.69%/-12.44%/-14.85% .

In terms of cost ratios, the cost ratio decreased by 3.21pct to 22.83% year-on-year, with sales/management/development/ finance rates of 11.35%/4.88%/3.04%/3.57%, respectively, -3.39pct/-0.16pct/ -0.12% /+0.46pct, respectively; the decline in sales expenses was mainly due to staff reduction; financial expenses increased 14.86% year over year, mainly due to loan interest charges after infrastructure project transformation.

24Q1 performance was under pressure, and the new waterproof business continued to grow. In 2024Q1, the company achieved total operating revenue of 295 million yuan, a year-on-year decrease of 40.00%; net profit lost 81.7346 million yuan/87.5031 million yuan respectively after deduction; the significant decrease in operating income was mainly affected by the general environment, and the company's project commencement and construction progress slowed; net profit was affected by the decline in the company's operating income and the decline in product gross margin, which also declined. By product, 24Q1's revenue from functional architectural coatings, building energy-saving materials, waterproof materials, and engineering construction was -51.76%/-26.47%/+10.53%/-74.39%, respectively. Only waterproof materials maintained positive growth. 2024Q1, the company's gross sales margin/net margin was 19.80%/-27.72%, respectively, -15.22pct/-24.47pct year-on-year, respectively. Judging from the product price, the average unit price of 24Q1 engineering coating/home decoration coating/insulation decorative panel/insulation material was -23.25%/-9.90%/-14.18%/-10.50%. On the cost side, the cost ratio increased sharply by 17.80pct year-on-year to 54.77% during the 24Q1 period, mainly affected by a sharp decrease in revenue.

The construction and coating industry has been consolidated and reshuffled, and the company's brand strength and competitiveness are still there. At the industry level, the market is large, and domestic concentration is low. The current industry pattern is facing consolidation and reshuffle, and the market share of leading companies with brand value and service capabilities is expected to increase in the future. At the company level, Ashi has an integrated product supply and service system with integrated coating and protection. The dealer channel covers 44 provincial and regional business lines across the country, and cooperates with central enterprises in nearly 50 countries, with rich case projects. Considering the continued risk of impairment and fierce price competition in the Dajian coating industry, we lowered our profit forecast. We estimated that the company's EPS for 2024-2025 will be 0.31 yuan and 0.38 yuan respectively, and the corresponding PE will be 18.5x and 15.4x respectively, maintaining a “highly recommended” investment rating.

Risk warning: sharp decline in real estate and infrastructure investment growth rate, risk of fluctuations in raw material prices, failure to develop waterproof business as expected, risk of impairment of accounts receivable