Key points of investment
Tianan New Materials has been deeply involved in the decorative materials industry for more than 20 years and the automotive materials industry for more than 10 years. In 2021, it acquired companies such as Yingpai Ceramics and Ruixin Decoration Materials to expand materials such as architectural ceramics and fireproof boards, and also rely on subsidiary channel resources to expand the home decoration and public decoration business to build a pan-home furnishing industry chain.
Yingpai Ceramics operates on an asset-light model, and there is plenty of room for channel expansion and supply chain exploration. In 2023, the country's production of architectural ceramics was 6.73 billion square meters, down 8% from the previous year. Production capacity was further reduced, industry concentration needed to be increased urgently, and OEM production cooperation among ceramic companies was becoming more frequent. Eagle mainly produces products through an external partnership model. The asset-light model has enabled the company's business scale to expand rapidly. The company had 1,373 dealers and 1,397 stores at the end of 2023. There is still a big gap compared to other ceramic tile leading companies, and there is more room for development in the future. In terms of the supply chain, the company is speeding up the construction of central warehouses, which helps reduce dealer inventory pressure, improve distribution efficiency, and reduce logistics costs. In 2023, the building ceramics business had revenue of 1,569 billion yuan, +20.78% year-on-year. The company's ceramic tile business bucked the trend, and its market share increased rapidly.
Automotive interior materials are developing rapidly, and Ruixin helped develop the company's pan-home layout and public decoration business. The company's polymer finishing materials include automotive interiors, fireproof panels, home decoration finishing materials, etc. Among them, automotive interiors are growing rapidly. 1) Automotive interior: China's automobile industry is steadily improving, new energy vehicles are booming, and the automobile ownership base guarantees medium- to long-term renewal needs. The scale of Cheonan's automotive interior business increased from 296 million yuan in 2020 to 487 million yuan in 2023, with a compound annual growth rate of 18%. 2) Fireproof panels: The company acquired Ruixin materials in 2021. The products are widely used in interior and exterior decoration of public buildings such as hospitals, schools, airports, and restaurants. On the one hand, fireproof panels enrich the company's product system and help the company open up the pan-home furnishing industry chain. On the other hand, they can use Tianhui Construction's advantages in the hospital EPC field to expand the public decoration business in the medical and other fields.
Grasp the development trend of complete decoration and adhere to the “ceramic+big household” dual-track parallel strategy. With the “ceramic+big home” dual-track development strategy, with new environmentally friendly finishing materials as the core, the company deepened and expanded the product development, installation and delivery process around the prefabricated interior concept, launched integrated sales and service of wall panels, floors, and tiles, and launched new tracks for high-end whole-house delivery and partial renovation of old houses, the company launched new business formats “Eagle Life” and “Eagle Renovator”. The company's business model continues to be upgraded and iterated, which is expected to drive up customer unit prices in the future.
Profit forecast and investment rating: The company is based on the two major businesses of architectural ceramics and polymer composite finishing materials, and focuses on driving product sales around the pan-home furnishing industry chain layout. Its subsidiary Yingpai Tiles has formed an asset-light operating model with high turnover, and the channel and business scale continue to expand; automotive interiors in polymer materials are growing rapidly, and the two major infrastructure industries are developing steadily. We expect the company's 2024-2026 net profit to be 1.59/1.88/228 million yuan, respectively, and the corresponding PE is 13X/11X/9X, respectively. Considering the space and potential for the company's new business integration and expansion, it was covered for the first time and given a “gain” rating.
Risk warning: the risk of fluctuations in raw materials and energy prices, the risk of increased market competition, and the risk of repayment of accounts receivable.