\u3000\u3 Shengda Resources Co.Ltd(000603) 378 Asia Cuanon Technology (Shanghai) Co.Ltd(603378) )
Key investment points
Event 1: the company released the annual report of 2021. During the reporting period, the company achieved a revenue of 4.72 billion yuan, a year-on-year increase of + 34.5%; The net profit attributable to the parent company was – 540 million yuan, up from 320 million yuan in the same period last year; The net profit deducted from non parent company was – 650 million yuan, compared with 280 million yuan in the same period of last year; The net cash flow from operating activities was – 1.03 billion yuan, compared with 250 million yuan in the same period of last year. In the fourth quarter alone, the company achieved a revenue of 1.04 billion yuan, a year-on-year increase of – 9.0%; The net profit attributable to the parent company was – 680 million yuan, up from 80 million yuan in the same period last year; The net profit deducted from non parent company was – 710 million yuan, compared with 60 million yuan in the same period of last year. In 21 years, the company accrued credit impairment losses totaling 780 million yuan.
Event 2: the company released the first quarterly report of 2022. During the reporting period, the company achieved a revenue of 490 million yuan, a year-on-year increase of – 18.8%; The net profit in the same period of last year was RMB -5.49 million and the net profit in the same period was RMB -5.42 million; Deduction of net profit not attributable to parent company -46.97 million yuan, compared with -31.139 million yuan in the same period of last year; The net cash flow from operating activities was – 420 million yuan, compared with – 1.01 billion yuan in the same period last year.
Revenue side: the release of production capacity promotes the prosperity of production and marketing, and the “integration and exploration” of distribution channels mainly drives the growth of revenue.
With the continuous release of production capacity and market development of Chongqing, Shijiazhuang and other factories of the company, the production and sales of building coatings have been booming in the past 21 years, and the volume and price of thermal insulation materials have risen simultaneously. The annual revenue of Engineering / home decoration coatings was 2.36/230 billion, with a year-on-year increase of + 24.9% / + 63.5% and a year-on-year increase of + 32.9% / + 94.7%. The revenue of thermal insulation materials increased significantly, with a revenue of 780 million, a year-on-year increase of + 54.7%; The revenue of thermal insulation decorative board was 430 million, a year-on-year increase of + 8.0%. The market of waterproof materials expanded smoothly, with a revenue of 210 million yuan, a year-on-year increase of + 462.5%. In terms of price, the unit price of engineering coating, home decoration coating, thermal insulation decorative board and thermal insulation materials throughout the year was – 6.0% / – 16.0% / + 1.7% / + 4.2% year-on-year. In terms of channels, the distribution / direct sales revenue in 21 years was 3.91/730 billion, a year-on-year increase of + 48.0% / + 11.1%, accounting for 84.2% / 15.8%. Under the background of the continuous improvement of industry concentration, the company firmly promotes the “integration and exploration” strategy, expands, penetrates and refines the dealer channel, and makes it the main driving force for the rapid growth of the company. By the end of the 21st century, the number of dealers of the company was 17600, with a year-on-year increase of about 110%.
Profit side: the impact of impairment / cost put pressure on the performance of 21 years, and the proportion of product price increase + coating revenue increased, which promoted the repair of 22q1 gross profit margin.
The rise in costs led to pressure on the gross profit margin, with a comprehensive gross profit margin of 24.0% in 21 years, a year-on-year increase of -8.6pct. Among them, the gross profit margin of coatings / building energy-saving materials / waterproof materials was 27.5% / 15.8% / 9.2% respectively, with a year-on-year increase of – 11.5 / – 2.2 / – 8.2pct. In addition to the decline in the price of coating products, the rise in the price of raw materials put great pressure on the gross profit margin. During the reporting period, the company’s purchase cost of lotion and titanium dioxide was +45.2%/+37.7% year-on-year. In terms of waterproof materials, the company’s own waterproof factory has not been officially put into operation in the reporting period, and the products are mainly supplied by outsourced production, so the comprehensive gross profit margin is low. With the company’s own factories gradually put into operation, its gross profit margin is expected to gradually increase. The unit price of engineering coating, home decoration coating, thermal insulation decorative board and thermal insulation materials of 22q1 company was + 12.8% / + 37.4% / + 5.7% / + 14.6% year-on-year. Due to the implementation of product price increase and the increase in the proportion of functional building coatings with relatively high gross profit, the gross profit margin of 22q1 company was repaired to 32.8%, year-on-year + 4.1pct and month on month + 14.2pct.
During the 21 years, the company’s expense rate was 23.4%, with a year-on-year increase of + 4.4pct, of which the sales / management / R & D / financial expense rate was + 2.6 / + 1.1 / – 0.2 / + 0.9pct respectively year-on-year. The increase in sales / management expense rate was mainly due to the increase in relevant personnel and share based payment expenses, of which the share based payment was 29.83 million, compared with 1.84 million in the same period of last year. Excluding the impact of individual impairment of receivables such as real estate customers, the company achieved a net profit of 92.78 million yuan in 21 years. Considering that the impairment is a one-time impact and the impairment provision is sufficient, we believe that the short-term profit disturbance has been fully released. Although the net interest rate of 22q1 was – 7.8%, the cash to income ratio increased to 1.65 (0.95 in the same period of last year). Under the condition of the gradual implementation of product price increase and the decline of the high price of some auxiliary materials, we are optimistic about the recovery trend of the company’s profit and cash flow in the whole year of 22.
Investment suggestions: from the perspective of the company’s core development, the small b-end of architectural coatings continues to increase in volume, the large b-end maintains stability, the C-end develops, the new production capacity continues to expand, the market share increases, and the medium and long-term cost rate decreases.
1) the demand side of the coating industry benefits from the continued tenacity of the completion of the real estate and the increased demand for recoating brought about by the long-term secondary decoration and the transformation of old residential areas. At the same time, the market’s requirements for all aspects of products are constantly improving, promoting the concentration of the company’s industry and benefiting the development of the company.
2) with the gradual production and capacity release of the company’s comprehensive factories in Chongqing, Shijiazhuang and Guangzhou, as well as Chuzhou waterproof material factory and other newly-built factories, the “1 + 6 + n” capacity layout is gradually completed, and the “1 + 8 + n” capacity layout is expected to be completed by 2023.
3) b-end: the company has strong brand, channel and capital advantages. In the future, it will continue to seize more market share of small b-end through integration and exploration, and large b-end will follow the growth of core real estate and continue to expand Chinese b-end customers.
4) at the C-end, the company has newly set up a “new retail business department” to take charge of the home decoration paint business. The new retail model helps market development and promotes the rapid growth of home decoration paint revenue. At present, more than 1000 retail dealers have signed contracts to continue to make up for the shortcomings of the company’s C-end business and create a new growth point of the company in home decoration paint.
Profit forecast: considering the impact of the epidemic and the maintenance of high raw material prices, we lowered the company’s profit forecast for 22-23 years to 340 / 580 million (the original value was 380 / 610 million), and the current stock price corresponds to 11 / 7 times PE, maintaining the “overweight” rating.
Risk tip: the growth of industry demand is less than expected; The orders of downstream real estate developers decreased significantly, and the expansion of new real estate customers was less than expected; Project accounts receivable risk; Retail expansion is less than expected; The cost of raw materials has risen sharply.
