The year-on-year revenue/net profit ratio was +0.09%/-43.1%, maintaining the “increase” rating, and published an annual report. In '23, it achieved revenue of 3.11 billion yuan (yoy +0.09%), net profit of 60.18 million yuan (yoy -43.09%), deducting non-net profit of 10.29 million yuan (yoy -71.37%). Among them, Q4 achieved revenue of 722 million yuan (yoy -7.06%, qoq -19.92%) and net profit to mother of 20.8 million yuan (yoy-56.53 million yuan, qoq-62.57 million yuan). We expect the company's 2024-2026 EPS to be 0.32, 0.42, and 0.66 yuan respectively (previous value 2024-2025 0.43 and 0.54 yuan). Comparable to the company's 24-year Wind, the average is 17 x PE, but considering that the company is a leading engineering coating company in the Shanghai region, the integrated coating and protection business collaboration continues to deepen, and growth flexibility is high. The company was given 23 xPE in 24, with a target price of 7.39 yuan (previous value of 9.84 yuan), maintaining a “gain” rating.

Waterproofing business accounts nearly doubled, and gross margin declined slightly due to product price pressure, and the company's construction/energy saving/waterproofing business achieved revenue of 20.96/6.60/258 million yuan respectively in '23, -4.01%/-7.14%/+94.93%. The waterproof business grew rapidly. In '23, the engineering coating/insulation decorative board/waterproof membrane achieved sales volume of 372,600 tons/5,519,400 square meters/13.99.24 million square meters respectively, +5.54%/+22.86%/+97.09% over the same period last year. The gross profit margin for 23 years was 30.52%, -1.88pct year on year, or mainly due to intense price competition, tight capital in some regions, and weak engineering demand, leading to a year-on-year decline in the company's product prices; among them, the gross margin of the construction/energy-saving/waterproofing business was 37.31%/16.69%/2.24%, +0.10/-2.25/-5.55pct; 23Q4 gross profit margin 24.15%, same as -10.05/-5.79pct month-on-month.

Rates improved relatively during the period, and cash flow increased year-on-year throughout the year

The cost rate for the 23-year period was 22.83%, -3.21pct, of which the sales/management/R&D/finance ratio was 11.35%/4.88%/3.04%/3.57%, -3.39pct/-0.16pct/-0.12pct/+0.46pct.

Net profit margin for 23 was 1.93%, -1.47pct; 23Q4 was -2.9%, or -7.5/-7.5pct YoY.

At the end of 23, the company's balance ratio/interest-bearing debt ratio was 72.8%/32.8%, -0.9/-0.3 pct year-on-year. Net operating cash flow in '23 was $438 million, +35% YoY, of which 23Q4 was $372 million, or -21.5% YoY; the annual revenue/cash ratio was 104.9%/89.4%, respectively.

24Q1 revenue/net profit to mother -40%/-0.7 billion yuan, 24 annual revenue plan +10-30% year-on-year 24Q1 achieved revenue of 295 million yuan, -40% year over year; net profit to mother -82 million yuan, year-on-year. In terms of profitability, 24Q1 gross margin/net profit margin was 19.80%/-27.72%, -15.22pct/-24.47pct year over year, or mainly due to the slow pace of resumption of work after the 24Q1 Spring Festival, which led to lackluster demand, and product prices declined further year over year. The cost rate for the 24Q1 period was 54.77%, +17.80pct year-on-year. Net operating cash flow of 24Q1 -270 million yuan, year-on-year -75 million yuan. The company's revenue target for 24 years is a year-on-year increase of about 10%-30%. The plan is to achieve significant improvements in human efficiency indicators, profitability, operating cash flow, supply chain security, and management energy levels to achieve a “higher level of management.”

Risk warning: Increased competition in the industry has led to a decline in profitability; a sharp rise in raw material prices, etc.