Maintain an “Overweight” rating. The waterproof industry pattern improved after it was cleared up, and the company's credit risk release was relatively sufficient. Considering the demand repair cycle and the maintenance of high raw material prices, the 2024-2026 EPS was adjusted to 0.27 (-0.33), 0.31 (-0.38), 0.37 (initial) yuan. Comparatively, the company's 24-year PE was 40x. Considering that the company's engineering business share was relatively higher, the target price was lowered to 9.45 yuan (-1.98) for 2024, and the target price was lowered to 9.45 yuan (-1.98) to maintain the “increase in weight” rating.
The waterproof industry pattern has been clarified, and the company's market share has increased. For the full year of 2023, the company's revenue of 7.944 billion yuan increased by 3.70%, and the 24Q1 company's revenue of 1,485 billion yuan decreased by 20.43%. We estimate that both figures are lower than the decline in new real estate construction data during the same period and the decline in the waterproof industry market space over the same period. Since 2021, the waterproof industry has ushered in a certain liquidation under the combined influence of demand pressure and real estate credit risk. Among them, second-tier companies have been hit relatively the most, while Keshun shares may have continued to rise against the trend as the second-largest market share in the industry.
Subsequently, along with the new construction cycle and the effects of the new waterproof regulations, the company's market share may be transformed into revenue elasticity.
The pattern is relatively bottoming out, and the company's profitability is expected to bottom out and recover. The gross margin of the 2024Q1 company was 23.81%, an increase of 2.22pct. In 2023, the waterproof industry ushered in a certain increase in price competition in some products and regional channels. Entering 2024, we observed that price competition in the industry was already relatively sufficient, and the probability of further significant fluctuations in the product price system was decreasing.
The raw material price system represented by 24Q1 asphalt was relatively stable year over year, while the company's gross margin improved year over year, reflected more of the stable industry pattern and price competition, as well as the results of reducing costs and increasing efficiency. We expect that in the context of the 23Q2-Q4 gross margin base remaining low, the trend of the company's year-on-year profitability advantage will continue quarterly throughout 24 years.
Real estate credit risk has been released relatively fully, and acquisitions or further straightened out. In 2023, the company announced a total increase of 864 million yuan in impairment, of which 803 million yuan in credit impairment was added, mainly due to depreciation of accounts receivable of 682 million yuan, and impairment of fixed assets of about 62 million yuan. We estimate that the impairment in 2023 will mainly be accounts receivable from risky real estate. We estimate that 20 or more real estate customers will be involved. The cumulative impairment ratio of accounts receivable from each depreciated customer may reach 50%-80%, and the real estate risk release is relatively sufficient. We estimate that the company is continuing to transfer project-backed real estate to insured real estate customers, and that the gradual completion of collateral asset transfers will further control the risk margin. In 2023, the company will make business adjustments to the shock absorption subsidiary Fortress Group, which was acquired earlier. The management and business integration of Fortress and Keshun is expected to be further streamlined and improved in the future.
Risk warning: Real estate investment has declined sharply, prices of raw materials have risen more than expected, etc.