Core views

The company achieved revenue of 5.49 billion yuan in the first half of 2024, up 15.7% year on year. Among them, the building materials machinery business and overseas building materials business increased by 28.9% and 4.0% respectively; net profit to mother was 0.45 billion yuan, a decrease of 64.2% year on year. The decline in net profit to mother in the first half of the year was mainly due to the sharp decline in the company's gross margin due to the impact of overseas building materials business and large fluctuations in lithium carbonate prices, which led to a decrease of more than 0.7 billion yuan in investment income compared to the same period last year. Looking ahead to the second half of the year, the gross margin of ceramic tiles in the company's overseas building materials business will be repaired along with price restoration. The company's building materials machinery business has seen good growth in domestic and foreign orders. We are still optimistic about the company's medium- to long-term development trend.

occurrences

The company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 54.0.9 billion yuan, a year-on-year increase of 15.7%; realized net profit due to mother 0.45 billion yuan, a year-on-year decrease of 64.2%; and realized net profit deducted from non-mother 0.4 billion yuan, a year-on-year decrease of 67.0%.

Brief review

Investment earnings dragged down second-quarter results. In the first half of 2024, the company achieved revenue of 5.49 billion yuan, a year-on-year increase of 15.7%; realized net profit of about 0.45 billion yuan, a year-on-year decrease of 64.2%; corresponding to the second quarter, achieved revenue of 2.93 billion yuan, a year-on-year increase of 30%, and realized net profit to mother of about 0.14 billion yuan, a year-on-year decrease of 83.5%. The growth rate of the company's net profit to mother is far lower than the revenue growth rate, mainly due to: 1. The company's gross margin fell 6.7 percentage points compared to the same period last year. Among them, the gross margin of overseas building materials fell by more than 12 percentage points due to price adjustments for ceramic tile products and fluctuations in the African exchange rate; 2. Significant fluctuations in the price of lithium carbonate and related tax rate adjustments and retroactive adjustments confirmed the amount of lithium brine purchased in the previous period, causing the company's investment income to decrease by more than 0.7 billion yuan compared to last year.

The overseas building materials business was affected by product price adjustments, and revenue growth fell short of expectations. In the first half of 2024, the company's overseas building materials business achieved revenue of 1.98 billion yuan, a year-on-year increase of 4.0%. In the first half of the year, ceramic production reached 0.084 billion square meters, an increase of about 20.0% over the previous year, corresponding to an average price of 23.6 yuan per square meter, which declined due to market competition. In the first half of the year, due to exchange losses and ceramic tile price adjustments, the gross margin was drastically reduced to 30.95%, but in the long run, the business is still on a rapid growth channel. According to MECS/AciMac Research Center data, the production capacity of architectural ceramics in Africa in 2022 was 1.037 billion square meters. Compared with China's current annual tile production of over 6 billion square meters, the African region is still an incremental market.

Actively lay out the accessories and consumables business and expand overseas market construction. In the first half of 2024, the company's ceramic machinery business achieved revenue of 2.71 billion yuan, an increase of 28.9% over the previous year. It is the business with the highest revenue growth rate. Currently, the company's building materials machinery business is still dominated by construction ceramic machinery, and domestic and foreign revenue and orders are growing well. Currently, the ceramic machinery business accounts for more than 60% of overseas orders, including Southeast Asia, the Middle East, Europe and South Asia, where there is good growth; the domestic market is benefiting from equipment trade-in and the stable application scale of pottery equipment across fields. The company focused on developing the accessories and consumables business through industry chain extension initiatives such as the acquisition of Italian mold company F.D.S. Ettmar, a shareholding in the leading domestic ink company Guocera Kanglitai, and the joint venture to establish an overseas ink brand Guangdong Kanglitai.

A buy rating is given, and the target price is 8.1 yuan/share. We expect the company's revenue in 2024-2026 to reach 11.18/12.7/14.61 billion yuan, and net profit to mother will reach 1.035/1.39/1.66 billion yuan respectively, corresponding EPS of 0.54/0.73/0.86 yuan/share, and the corresponding PE is 13/10/8 times. Referring to listed companies in the domestic ceramic tile sector, PE is about 10 times in 2024. The company targets the African market. The company expects the compound growth rate of overseas building materials revenue to be 17.8% in 2024-2026. We gave the company 15 times PE in 2024, with a target price of 8.1 yuan/share, corresponding to 2023-2025 PE 15/11/9 times, giving it a “buy” rating.

Risk analysis

1. The results of the commissioning of the new production line in Africa fell short of expectations. In 2024, the company will start producing two new categories of building materials, glass and sanitary ware, in Africa. Since the company previously mainly produced and sold tiles in Africa, and there was relatively little involvement in glass and sanitary ware, the expansion of the two new categories will bring a certain increase in sales expenses and affect the company's net interest rate performance of overseas building materials; at the same time, if sales of the new categories fall short of expectations, it may also cause the company's overseas building materials development to fall short of expectations.

2. The recovery in domestic real estate demand fell short of expectations. According to data from the Bureau of Statistics, China's real estate sales area fell 8.5% year on year in 2023; at present, real estate has bottomed out, but demand restoration is still under some pressure; the development of the company's domestic pottery business is closely related to domestic real estate sales. If real estate restoration falls short of expectations in 2024, it will still greatly affect the performance of the company's business.

3. The price of lithium carbonate fell more than expected. The company holds 43.58% of Lanke Lithium's shares and recognizes investment returns every year. Due to the sharp drop in lithium carbonate prices in 2023, the company's investment income also fell by 2.1 billion yuan in 2023, which dragged down the company's overall net profit performance. If the price of lithium carbonate falls further than expected in 2024 and reaches a net profit level of 1 w/ton, it may cause the company's net profit to fall by 8.2% in 2024.