Description of the event
The company released its 2023 annual report and 2024 quarterly report: in 2023, it achieved revenue of about 7.94 billion yuan, a year-on-year increase of 4%, and attributable net profit of about -340 million yuan, a year-on-year decrease of 289%. The first quarter of 2024 achieved revenue of 1.49 billion yuan, a year-on-year decrease of 20%; attributable net profit of about 50 million yuan, a year-on-year decrease of 9%; deducted non-net profit of about 0.2 billion yuan, a year-on-year decrease of 43%.
Incident comments
Industry demand was under pressure, and revenue bucked the trend. The company's revenue in 2023 increased 4% year-on-year, far better than the industry level, reflecting the company's competitiveness. According to statistics from the China Building Waterproofing Association, the total waterproof output in 2023 was 3,059 billion square meters, down 11.5% from 2022. Considering the sharp decline in industry prices, the market size declined even faster. By product, revenue from waterproof membranes was about 4.2 billion yuan, down 3% year on year, revenue from waterproof coatings was about 1.9 billion yuan, up 13% year on year, and revenue of Fengze Co., Ltd. (i.e., seismic isolation business) was about 300 million yuan, up 15% year on year. By channel, the company is actively adjusting the channel structure and vigorously developing the distribution model. The company has established long-term and stable cooperative relationships with more than 3,200 dealers in 31 provinces and cities across the country (only 2,500 in the same period last year), and currently accounts for more than 50% of distribution revenue. The pressure in the first quarter was strong. The company's revenue fell 20% year on year. One was due to weak demand for new real estate and infrastructure construction in the first quarter, and the other was due to the fact that the revenue of Fengze Co., Ltd. was not consolidated in the first quarter. (Since September 2023, the company has been unable to obtain information on the actual business situation, asset status, and potential risks of Fortress Co., Ltd., and will no longer include Fortress Co., Ltd. in the scope of consolidated financial statements. (On April 6, 2024, the company believed that the influencing factors had been eliminated and that it had regained substantial control of Fortress Co., Ltd.)
Gross margin rebounded at the bottom, and expenses bucked the trend. The company's gross margin in 2023 was about 21.2%, about the same as the previous year. Among them, the gross margin of the material sales business rebounded 1.5 percentage points from the bottom, and the gross margin of the engineering construction business dragged down 7.6 percentage points. By product, the gross margin of waterproof membrane was about 18.2%, down 0.6 percentage points from the previous year; the gross margin of waterproof coating was about 31.6%, up 5.6 percentage points from the previous year, mainly due to the fact that the price of core raw materials for paint dropped a lot. The company's rate increased 0.8 percentage points year-on-year during 2023, with sales rates increasing 1.3 percentage points year-on-year, mainly due to the company's active development of retail channels, which led to an increase in advertising expenses. The company accrued credit impairment losses of about 760 million yuan for the whole year. After the depreciation, the company's net interest rate for the whole year was about 4%, a slight decrease over the previous year. Looking at the first quarter, the revenue structure was optimized. The gross margin was about 23.8%, up 2.2 percentage points from the previous year, and 2.7 percentage points from the previous month. However, due to the decline in revenue and increased amortization, the rate for the period also increased by 2.2 percentage points year on year. Ultimately, the net attributable interest rate was about 3.6%, up 0.4 percentage points from the previous year.
The payout ratio continues to increase. The company's revenue ratio continued to improve over the past three years (2021-2023), which was 0.88, 0.99, and 1.04, respectively, but the pay-to-cash ratio also continued to rise. Ultimately, net operating cash flow reached 190 million yuan in 2023, and there has been no significant improvement. Looking at the first quarter, the situation is similar. In the past three years (2022Q1-2024Q1), the revenue ratio continued to improve, which was 0.69, 0.82, and 0.85, respectively, but the payout ratio continued to increase or was due to the company increasing winter savings under pressure from raw materials, which ultimately led to a decline in operating cash flow in Q1. The company's accounts receivable and notes at the end of 2023 were about 4.16 billion yuan, a year-on-year decrease of about 700 million yuan.
The company's cumulative credit impairment losses in 2020-2023 are close to 1.5 billion yuan, which means that the company's risk exposure may be sufficient.
The company's net profit for 2024-2025 is estimated to be about 40 to 60 billion yuan, and the corresponding valuation is 18 to 12 times.
Risk warning
1. The recovery of the real estate industry falls short of expectations;
2. The price of raw materials continues to rise.