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Core view
The company is a leading enterprise in domestic construction coatings industry. Under the trend of demand recovery and market share concentration in the coatings industry, the tob business of the company is expected to achieve rapid volume; superimposing the production capacity release expectations of Anhui, Xinjiang and Chongqing, the company is optimistic about the performance growth flexibility and long-term growth space. It is predicted that the EPS of the company in 2019-2021 will be 0.57/1.12/1.54 yuan, and 33xpe will be given in 2020, corresponding to the target price of 37 yuan. For the first coverage, "buy" rating will be given.
Abstract
Domestic leading enterprise of architectural coatings, diversified development of products. The company is mainly engaged in building coatings, thermal insulation decorative boards, fire insulation materials, etc., has been deeply involved in the industry for many years, and has accumulated many large-scale real estate customers. The business scale of engineering building coatings has reached the top 3 in China. At present, the company has two major production bases in Shanghai and Chuzhou, with a capacity of 272600 tons of building coatings, 2.1 million square meters of heat preservation decorative boards and 300000 cubic meters of heat preservation materials.
The demand for architectural coatings is picking up, and the market share is concentrated to the head. In 2020, the peak growth of real estate completion and recovery is expected to come. It is expected that the demand for domestic architectural coatings will reach nearly 7.5 million tons, up 9% year on year. Thanks to the promotion of the centralized procurement mode of the downstream real estate developers and the increase of environmental protection supervision pressure, the improvement of coating concentration has become a trend. In recent two years, domestic Cr4 has increased by 2pct to 13%, but it is still far below the global level. The product strength and brand strength of local coating enterprises are gradually aligned with that of foreign leaders, and the share is expected to continue to focus on domestic top enterprises.
Focus on tob business expansion and highlight the advantages of customized services. The company takes big b-end customers as its business core and has become the designated supplier of Vanke, Evergrande, poly and other large real estate companies. Thanks to the improvement of the concentration of the real estate industry and the promotion of the centralized mining mode, the company's tob business is expected to achieve rapid growth. The company's strong quality control ability, customization ability and comprehensive service ability constitute the core product competitiveness, and the downstream recognition continues to improve.
The expansion of production drives the performance elasticity, and there is room for the cost rate to decline. The company is in the process of national layout, and has planned production bases in Urumqi, Chongqing, Changsha, Shijiazhuang and other regions. It plans to add 800000 tons of paint production capacity and 12.5 million square meters of cpst production capacity. In the future, with the gradual release of planned capacity, we are optimistic about the company's performance growth elasticity; at the same time, with the emergence of scale effect and the reduction of transportation radius, the company's expense rate is expected to further decline.
Risk factors: the weak demand of the industry leads to the decline of product sales; the price of raw materials fluctuates; the progress of receivables collection is less than expected; the release of new capacity is less than expected.
Investment suggestion: the company is a leading enterprise in domestic construction coating industry. Under the trend of demand recovery and market share concentration in the coating industry, the company's tob business is expected to achieve rapid and large-scale growth; superimposing the production capacity release expectations of Anhui, Xinjiang and Chongqing, the company is optimistic about the flexibility of performance growth and long-term growth space. It is predicted that the net profit attributable to the parent company in 2019-2021 will be RMB 1.10/2.19/300 billion respectively, and the corresponding EPS forecast will be RMB 0.57/1.12/1.54 respectively. According to the industry valuation level, the company will be given 33xpe in 2020, corresponding to the target market value of 7.2 billion yuan, corresponding to the target price of 37 yuan. For the first coverage, "buy" rating will be given.
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Deep ploughing in the construction coating industry, rapid expansion of business scale
Leading enterprise of architectural coatings, diversified development of products
Asichuanneng is a leading enterprise in building insulation and decoration materials in China. The company integrates the R & D, manufacturing and service of building coating, thermal insulation decorative board and fire insulation new materials, adheres to the concept of "customer-oriented, constantly meet customer needs, and continuously create value for customers", and with rich products, professional services and independent innovation ability, it has become a strategic acquisition supplier for many top 100 real estate enterprises in China, such as Vanke, Evergrande, etc.
We have been deeply engaged in the field of architectural coatings, and our marketing network covers the whole country. In 1998, Hangzhou Yashi paint Co., Ltd., the first factory of the company, was completed and put into operation. In 2004, the headquarters of the company moved from Hangzhou to Shanghai, and successively launched functional building coating product system, external wall thermal insulation system product system, thermal insulation decorative finished board product system. It was listed on the main board of Shanghai Stock Exchange on September 28, 2017. The company has established production bases in Shanghai, Anhui, Tianjin, Xi'an, Xinjiang and other places. In 2019, the company started to build the ninth production base in Chongqing, with its marketing network covering the whole country.
Diversified development of products, promote the research and development of new insulation board. Asichuaneng adheres to the concept of "industry specialization and field diversification", builds the core competitiveness of functional building coatings, and launches many series of real stone paint, texture paint, etc.; strides across the coating field, creates the finished insulation board industry, and creates a new organic insulation material with high fire performance - real gold fire insulation board; adheres to the research and development of more new products, and launches a sub flexible granite Rock, the realization of exterior wall decoration components; enter the waterproof industry, bring greater strategic depth for future development, better and faster service to customers.
Mr. Li Jinzhong is the actual controller of the company. The company's equity structure is clear and stable. The company's largest shareholder and actual controller is Mr. Li Jinzhong, the company's founder and chairman. As of the third quarter of 2019, the direct and indirect shareholding ratio of Li Jinzhong reached 54.79%, and the total shareholding ratio of Zhao Xiaofang, the person acting in concert, reached 60.29%. The company has 10 wholly-owned subsidiaries and 1 joint venture, whose business involves all aspects of product production, storage, transportation and sales.
Rapid expansion of revenue scale and growth driven by coating business
Paint business continued to expand, driving the company's rapid growth in revenue. In 2018, the company achieved an operating revenue of 1.662 billion yuan, with a year-on-year increase of + 23%; in the first three quarters of 2019, the company achieved an operating revenue of 1.752 billion yuan, with a year-on-year increase of + 52%. Thanks to the continuous expansion of functional building coatings business, the company's revenue scale grew rapidly, with a CAGR of 23.9% in 2013-2018. From the perspective of operating revenue, in 2018, the revenue of functional building coatings reached 1.151 billion yuan, accounting for 69.3% of the total revenue, contributing to the main revenue of the company. In 2018, the total revenue of thermal insulation decorative board and real gold fire insulation board business was 409 million yuan, up + 12.4% year on year.
The sales volume of functional building coatings increased, and the product price was relatively stable. Thanks to the expansion of production capacity and the development of downstream market, the sales volume of functional coatings of the company increased rapidly and became the core driving force of performance growth. In 2014, the company's sales volume of functional building coatings reached 54500 tons, which has increased to 327000 tons by 2018, with an annual compound growth rate of 56.5%. The business of thermal insulation board and thermal insulation decorative board is in the stage of technical reserve, waiting for the opportunities brought by the renovation market and prefabricated buildings. In terms of product price, in recent years, the prices of building coatings, thermal insulation decorative boards and other products are relatively stable.
Functional coatings are the company's main source of profit. From the perspective of gross profit structure, in 2018, functional building coatings generated a gross profit of 397 million yuan, accounting for 82% of the company's gross profit. Thermal insulation board and thermal insulation decorative board generated a gross profit of 71 million yuan, accounting for 15% of the total gross profit.
Based in the East, radiating the whole country. The company started in Hangzhou, Zhejiang Province, and then moved to Shanghai. It has established production bases in Shanghai, Anhui, Tianjin, Xi'an, Xinjiang and other places, opening up regional markets across the country. At present, from the perspective of regional structure, the eastern region is the main contribution area of the company's gross profit, accounting for 68% in 2018. In the western and central regions, the proportion of gross profit reached 15% and 13% respectively. The company has laid out production capacity in Chongqing, and it is expected that the Midwest market will become another important growth area of the company's profits in the future.
The net profit attributable to the parent company fluctuated in short term, and the operating cash flow was basically good. Driven by the rapid expansion of the company's revenue scale, the company's net profit attributable to the parent company has improved. In the first three quarters of 2019, the company realized a net profit attributable to the parent of 80 million yuan, up + 54% year on year. In 2016-2018, due to the rise of raw material prices, and the price of the company's products did not rise accordingly, the net profit attributable to the parent company fluctuated in a short term, which also led to the operating cash flow of - 97 million in 2017. With the recent stable price of raw materials, the company's operating cash flow is good.
Optimistic about the profitability, roe has the expectation to improve
Optimistic about the company's profitability, there is room for improvement of benchmarking. From the perspective of product structure, the gross profit margin of functional building coatings is at a high level, reaching 34% in 2018, and 22% and 11% in the same year for thermal insulation decorative boards and thermal insulation boards. The company's gross profit rate has declined in recent years, mainly because the company's product price has appropriately decreased to expand the market, and the cost of raw materials has increased. From 2018 to 2019, with the stable decline of raw material prices, the company's gross profit rate level rebounded and increased, and it is expected that the cost will be further reduced in the future under the low oil price. Compared with the leading enterprises in the same industry, the company's profitability still has about 10 PCT room to improve compared with Nippon, Akzo Nobel, sankeshu, etc. Under the trend of concentration of coating industry market, we are optimistic about the improvement of profitability.
The cost rate of the company has significant advantages over large-scale coating enterprises. At present, the company's expenses are mainly sales expenses and management expenses, with the sales expense rate of 14% and management expense rate of 8% in 2018. Compared with the leading global coatings companies, the company's cost rate is at a low level, with significant advantages in cost control and management. In the past three years, the average sales and management expense rate of Akzo Nobel, Nippon, sankeshu and other paint leaders is about 30%, and the company's sales and management expense rate in 2018 is only 22%.
The net interest rate is expected to be good and the company's roe growth potential is optimistic. It is expected that the company's gross profit rate will rise steadily in the future. At the same time, with the further expansion of the company's revenue scale, the scale effect will be more prominent, and there is room for further decline in the expense rate. It is optimistic that the company's net interest rate will be better. In 2018, the company deducted 2.6% of non roe. Compared with the industry leaders such as Nippon and sankeshu, there is a large room for improvement. In the future, with the gradual expansion of the company's production scale and market share, we are optimistic about the company's roe improvement.
The risk of accounts receivable is controllable, and the current risk is transmitted upward
The dispersion of accounts receivable is improved, and the risk of bad debts is controlled as a whole. In order to rapidly increase market share, the company has made great efforts to expand customers in recent years, and the account period of accounts receivable has been slightly extended. The turnover days of accounts receivable in 2018 are 123 days. From the perspective of accounts receivable structure, the concentration of accounts receivable in 2016-2018 shows a downward trend. With the increasing number of customers, the credit risk dispersion of accounts receivable has increased. The top five accounts receivable collection customers of the company remained stable, mainly large real estate companies and their supply chain cooperative decoration companies, with small credit risk.
Upstream enterprises share the accounting period, which can mitigate some liquidity risks. The upstream of building materials is mainly styrene, acrylate and other chemical raw materials, which are fully competitive industries. The company has a strong voice in suppliers and can relieve some capital pressure by delaying the payment term of accounts payable. The turnover days of the company's accounts payable have continued to rise since 2012, and the company's accounts payable in 2018