\u3000\u3 Shengda Resources Co.Ltd(000603) 737 Skshu Paint Co.Ltd(603737) )
Key investment points
Event 1: the company issued the 2021 annual report. During the reporting period, the company achieved a revenue of 11.43 billion yuan, a year-on-year increase of + 39.4%; The net profit attributable to the parent company was – 420 million yuan, up from 500 million yuan in the same period last year; The net profit deducted from non parent company was – 560 million yuan, up from 420 million yuan in the same period of last year; The net cash flow from operating activities was 480 million yuan, a year-on-year increase of + 5.9%. In the fourth quarter alone, the company achieved a revenue of 3.52 billion yuan, a year-on-year increase of + 10.0%; The net profit attributable to the parent company was – 480 million yuan, compared with 180 million yuan in the same period of last year; The net profit deducted from non parent company was – 500 million yuan, compared with 150 million yuan in the same period of last year. In 2021, the company made provision for impairment of various assets totaling 840 million yuan.
Event 2: the company released the first quarterly report of 2022. During the reporting period, the company achieved a revenue of 1.7 billion yuan, a year-on-year increase of + 14.5%; The net profit attributable to the parent company was -38.739 million yuan, up from 8.067 million yuan in the same period last year; Deduction of net profit not attributable to parent company was -98.781 million yuan, compared with -70.201 million yuan in the same period of last year; The net cash flow from operating activities was – 300 million yuan, compared with – 450 million yuan in the same period of last year.
Revenue side: the channel structure is continuously optimized, and C + small B is the main driving force of revenue growth.
In terms of sales channels, in 2021, the company’s sales revenue of distribution and direct sales business was + 49.8% and + 21.7% respectively year-on-year, accounting for 67.9% and 32.1% of the main business respectively. The proportion of distribution continued to increase, with a year-on-year increase of + 4.7pct. In 2021, due to the downward impact of the downstream real estate boom, the growth of big B business is under pressure, and we expect to achieve small single digit growth; Small b-end and C-end revenue are expected to achieve high growth, of which the growth rate of C-end revenue is expected to reach more than 50%, which is the main driving force for the rapid growth of revenue. During the reporting period, the construction of small B channels of the company was gradually improved. By the end of 21, the number of small B channel customers was 14848, a year-on-year increase of + 197.1%. 22q1 company still achieved a growth rate of more than 10% during the pressure period of the industry. We believe that the driving force of growth still mainly comes from C-end and small b-end. The growth rate of C-end is expected to further improve, the growth of small b-end remains stable, and the business of large B may decline slightly year-on-year.
In terms of products, thanks to the increased marketing and market development in the past 21 years, the company’s income of home decoration wall paint, engineering wall paint, base materials and auxiliary materials, adhesives and waterproof coiled materials increased significantly, with a year-on-year increase of + 103.0%, + 29.2%, + 83.3%, + 82.9% and + 36.6% respectively; The construction was controlled, and the annual decoration construction income was – 25.9% year-on-year. 22q1 benefited from the high growth of C-end, and the income of home decoration wall paint and adhesive was + 79.9% and + 76.4% year-on-year; The revenue of base materials and auxiliary materials and engineering wall paint was + 21.0% and 5.8% year-on-year respectively, and the revenue of other categories decreased. In terms of sales volume, the sales volume of home decoration wall paint, engineering wall paint, base materials and auxiliary materials, adhesives and waterproof coiled materials maintained a rapid growth, with a year-on-year increase of + 98.4%, + 37.4%, + 56.4%, + 46.1% and + 41.8% respectively. The sales volume of 22q1 home decoration wall paint and adhesive increased rapidly, with a year-on-year increase of + 88.9% and + 24.0%. In terms of price, the unit prices of the company’s home decoration wall paint, engineering wall paint, base materials and auxiliary materials, adhesives and waterproof coiled materials were + 2.2%, – 5.9%, + 16.9%, + 25.3%, – 3.7% year-on-year respectively in 21 years. In the reporting period, due to the pressure of rising prices of raw materials, the prices of most products of the company increased by different ranges. Among them, the price of engineering wall paint decreased due to the influence of channel pricing strategy, and the decline in the unit price of waterproof coiled materials was caused by the change of product structure. The unit prices of 22q1 home decoration wall paint, engineering wall paint, base materials and auxiliary materials, adhesive and waterproof coiled materials were – 4.9%, – 1.3%, + 13.0%, + 42.2%, + 2.3% year-on-year respectively, and 21q4 was – 12.2%, + 0.2%, + 5.4%, – 10.4%, + 0.4% month-on-month respectively. The year-on-year / month decline of some prices was caused by the change of product structure.
Profit side: accrual + raw material price increase put pressure on the annual performance, the price increase was gradually reflected, and the gross profit margin of 22q1 increased slightly month on month.
The gross profit margin in 21 was 26.1%, a year-on-year increase of -7.8pct, mainly due to the sharp rise in the price of raw materials during the reporting period and the lag in the price increase. The purchase prices of lotion, titanium dioxide, resin, solvent, monomer and asphalt increased significantly, respectively +42.8%, +47.4%, +42.6%, +65.1%, +64.3% and + 20.0%. The gross profit margin of 22q1 was 26.3%, with a year-on-year increase of – 0.2pct, compared with + 0.4pct in 21q4. Generally, the scale of Q1 business is small, which is difficult to give full play to the economies of scale, resulting in higher costs. We believe that the improvement of gross profit margin on a month on month basis reflects the effect of the company’s previous price increase, and on the other hand, the increase in the proportion of C-end and small B business with smoother price transmission also plays a role. Considering that the company still raised the price at the end of the first quarter, the performance is expected to continue the good repair trend after the subsequent implementation.
During the 21 years, the expense rate of the company was 24.1%, with a year-on-year increase of -1.0pct. The company continued to give full play to the advantages of economies of scale and promoted the decrease of expense rate. In terms of splitting, the rates of sales, management and R & D expenses were – 0.4pct, – 0.4pct and – 0.2pct respectively year-on-year; The financial expense rate was basically flat year-on-year. The net interest rate of the company in 21 years was – 3.5%, compared with 6.5% in the same period last year. During the reporting period, the company made impairment provision considering the potential impact of default of some real estate customers. In 21 years, a total of 840 million yuan of asset impairment provision was made, resulting in a loss in performance. 22q1’s net profit margin is – 2.4%. Due to holiday factors, Q1 shipments are mainly concentrated in March, which is difficult to cover quarterly costs and expenses in the short term. We expect that the net profit margin in March has actually improved significantly.
Cash flow: the operating cash flow continues to improve, and it is expected that the subsequent fixed increase capital will be implemented to alleviate the debt pressure and further improve the cash flow.
In 21 years, the net operating cash flow of the company was 480 million yuan, a year-on-year increase of + 5.9%, the cash to cash ratio was 98.0%, a year-on-year increase of + 3.3pct, benefiting from the rapid growth of C-end and small B business and the increase of business proportion, and the cash flow of the company continued to improve. The net operating cash flow of 22q1 company was – 300 million yuan, compared with – 450 million yuan in the same period last year, with a cash to cash ratio of 151.91%, a year-on-year increase of + 6.5pct. The asset liability ratios of the company in 21 and 22q1 were 82.5% and 83.5% respectively, which continued to increase in recent years, mainly due to the company’s increased capital expenditure on Capacity Construction in recent years. The capital investment in large-scale plant construction has been gradually ended, and the debt is expected to be relieved after the pressure on capital expenditure is reduced in the future. After the implementation of the previously announced 3.7 billion fixed increase plan, the company’s asset liability structure is expected to be further optimized.
Investment suggestion: the coating industry has broad development prospects (new houses and second-hand stock houses), and the current pattern is scattered. Under the catalysis of many factors such as stricter environmental protection, increased labor costs and upgrading of regulation and control in the real estate industry, the industry has accelerated the reshuffle and the continuous clearing of small and medium-sized production capacity. Facing the favorable opportunity of industrial structure adjustment and industrial concentration, the company has the advantages of scale and capital, and continues to make efforts in channel and brand construction: small b-end operation is efficient, and accelerate the improvement of channel layout, expand the share of first and second tier cities, and explore the integration of third and fourth tier cities; The C-end establishes the national brand image through the cooperation of the Winter Olympic Games and other forms, and provides immediate service to effectively solve the pain points of consumers; Relying on the advantages of capital and low cost, big b-end has increased cooperation with leading real estate developers to maintain stable operation. In addition, the company’s category expansion is progressing rapidly: the base materials and auxiliary materials, waterproof materials and thermal insulation business are also expanding rapidly, forming a six integrated supply system of “coating, thermal insulation, waterproof, floor, base materials and construction”, so as to meet the demand of one-stop green building materials in the whole house. In the future, the company’s capacity expansion will ensure the steady growth of revenue and continue to reduce fees, hoping to promote the improvement of profitability.
Taking into account the “boom” and “landing profit” of the parent company, our forecast is 1.6 billion yuan, which is 2.4 times that of the previous year, and the net profit of PE is expected to be 1.6 billion yuan, which is 2.4 times that of the previous year.
Risk warning: channel development is not as expected; Impairment risk of Engineering accounts receivable; The price of raw materials has risen sharply.
