Recently, the performance of listed companies in the decoration and building materials industry has been released one after another. A series of signs indicate that the industry is gradually getting rid of the impact of weak demand in the real estate market and ushered in a rebound in profits. Among these, Dongfang Yuhong's performance is remarkable.
According to the company's financial data, Dongfang Yuhong achieved revenue of 32.823 billion yuan in 2023, 5.15% year on year; net profit attributable to shareholders of listed companies was 2,273 billion yuan, 7.16% year over year; and basic earnings per share were 0.91 yuan/share, up 7.06% year on year. The company achieved both revenue and profit growth, and the growth and steadiness of industry leaders continued to show.
1. Performance growth: steady pace and improvement in business quality
After an in-depth analysis of this financial report, it is easy to find that Dongfang Yuhong has not only achieved significant growth in performance, but has also effectively improved its overall management quality, showing a side of high-quality development. Specifically, this can be developed from the following three key dimensions presented in the financial report:
a. Rapid growth in business
First, from a business perspective, Dongfang Yuhong's major business segments have grown well in the past year, showing the company's competitiveness and market adaptability in various fields. The company's diversified strategies and innovative capabilities have provided continuous growth momentum for its performance growth.
Specifically, as one of Dongfang Yuhong's core businesses, waterproof membrane achieved revenue of 13.314 billion yuan in 2023, with a year-on-year growth rate of 6.71%, indicating that the company's market position in traditional competitive fields is still strong.
The revenue of the paint business reached 9.685 billion yuan, a year-on-year growth rate of 13.85%. This growth rate shows Dongfang Yuhong's good competitiveness and growth potential in the paint market.
At the same time, the mortar powder business achieved revenue of 4.196 billion yuan in the past year, with a year-on-year growth rate of 40.00%, the fastest growing among all business segments. This significant growth shows Dongfang Yuhong's strong expansion and market occupation capacity in this market segment. As part of the company's diversification strategy, the rapid growth of mortar powder has contributed significantly to the company's overall performance growth.
Furthermore, the scale of the waterproofing construction business was gradually reduced under strategic adjustments, and the business segment achieved revenue of 3.245 billion yuan in 2023.
b. Gross and net profit margins
Second, Dongfang Yuhong's gross margin and net margin both achieved year-on-year improvements. This achievement was achieved thanks to the company's efforts to control costs and improve operational efficiency. According to financial reports, the company's gross margin for 2023 was 27.69%, up 1.92 percentage points year on year, net interest rate was 6.97%, up 2.69 percentage points year on year, and the weighted average return on net assets was 8.24%, up 0.27 percentage points year on year. Under the double pressure of fluctuating raw material prices and increased market competition, Dongfang Yuhong has successfully enhanced profitability by improving production efficiency, optimizing product structure, and increasing product added value.
It is worth mentioning that the company's retail gross margin is generally above 40%. As the share of retail sales increases, it will also provide important support for improving cash flow and increasing gross margin in the future.
c. A sound financial structure
Finally, Dongfang Yuhong's overall debt level was effectively controlled, and the company showed a sound financial structure. As of the end of the fiscal year 2023, the company's balance ratio was 43.90%, down 2.32 percentage points from the same period last year. In addition, the company's net operating cash flow improved significantly, reaching RMB 2.03 billion at the end of the fiscal year 23, an increase of 221.58% over the same period of the previous year, of which the fourth quarter of '23 was 6.863 billion yuan.
As can be seen, the company's solid financial position provides a solid foundation for future investment and expansion. Through reasonable capital operation and risk management, Dongfang Yuhong ensures that the company can maintain financial stability and sustainability while pursuing growth. This financial soundness allows the company to maintain sufficient flexibility and responsiveness in the face of market uncertainty, thereby gaining an advantageous position in competition.
It is worth mentioning that the company's accounts receivable have been effectively reduced. By the end of 2023, the amount of accounts receivable was 9.568 billion yuan, down 2.80% from the beginning of 23, and the share of total assets fell from 21.5% in early 23 to 18.70%.
In summary, Dongfang Yuhong's annual report not only shows the company's steady pace of performance growth, but also reflects its continuous improvement in the quality of operations. The achievement of these achievements is also the result of a combination of factors such as the execution of the company's strategy, market positioning, and internal management.
2. Competitive barriers and growth potential build a “flywheel” for value multiplication
Behind the steady growth in performance, in-depth analysis reveals that Dongfang Yuhong has built a “flywheel” to drive the continuous growth of the company's value through its unique competitive advantage and strategic layout. The operation of this “flywheel” was not achieved overnight, but rather stemmed from strong support from competitive barriers and growth potential nurtured by Dongfang Yuhong over a long period of time in the industry.
Competitive barriers: the double guarantee of first-mover advantage and scale effect
First, Dongfang Yuhong's deep cultivation within the industry has accumulated a significant competitive advantage for it. The company has not only established a good reputation for product quality and technological innovation, but has also formed strong market barriers through forward-looking market layout and capacity expansion. These barriers include not only brand influence and customer loyalty, but also their capacity layout in key regions and scale advantages in supply chain management.
On the one hand, as a pioneer in the waterproof materials industry, Dongfang Yuhong's pioneering advantage is not only reflected in brand influence and market recognition, but also in its nationwide production capacity layout. The market radius characteristics of waterproof materials enabled pioneers to establish strong competitive barriers in the market. Through the advance layout of key regions, Dongfang Yuhong not only successfully occupied the market share, but also laid a solid foundation for subsequent market expansion.
On the other hand, as a leading enterprise in the industry, Dongfang Yuhong has significant economies of scale and obvious cost advantages. The efficiency of scale enables the company to have greater bargaining power and cost advantages in raw material procurement, production efficiency and marketing. This cost advantage provides strong support to Dongfang Yuhong in market competition, enabling it to maintain a leading position in fierce competition such as price wars.
Furthermore, the company's share of retail channels is constantly increasing, bringing greater expectations for future growth. Financial reports show that in 2023, the company's retail business achieved revenue of 9.287 billion yuan, an increase of 28.11% over the previous year, accounting for 28.29% of the company's revenue. Generally speaking, the Matthew effect of retail channels is also often more prominent, and pioneers are often more able to establish high barriers to customer mentality occupation and market penetration. Dongfang Yuhong's deep cultivation in the retail market has not only increased market coverage, but also enhanced user loyalty. This competitive advantage based on brands and channels provides strong support for the company's future development.
Judging from financial reports, with the increase in the share of retail business, the company's gross margin improved markedly. The company's retail channels are managed by its subsidiary Civil Construction Group, the Architectural Coatings Retail Business Division, and the Construction Repair Group Yuhong Home Service Division. It serves the home decoration and heavy renovation and repair market for ordinary consumers through the establishment of a complex marketing network integrating home improvement companies, building materials supermarkets, operation centers, community service station dealers and e-commerce.
In the past year, its Civil Construction Group developed rapidly. By the end of the year, the Civil Construction Group had nearly 5,000 dealers and over 220,000 distribution outlets. In addition, the architectural coatings retail business further sorts out and improves work content such as brand positioning, market expansion, and channel management. The Repair Group is committed to opening up the “last mile” of Yuhong Home Service. It has set up more than 1,200 operation centers and community service stations across the country, distributed in 153 cities in 29 provinces (municipalities directly under the Central Government) to achieve the “100 Cities and 1000 Stores” plan. At the same time, it has also opened Yuhong Home Service Operation Centers in Vietnam, Kuala Lumpur, Malaysia, and Manila in the Philippines.
Growth potential: the dual driving force of industry evolution and strategic layout
Second, Dongfang Yuhong's potential for growth cannot be ignored either. The company has successfully opened up new growth space through continuous product innovation and market expansion.
From the perspective of changes in the industry pattern and increased concentration, according to “Paint the Border” data, the global CR10 is about 50%, of which the US, Japan, South Korea, and Germany are 93%, 95%, 95%, and 90% respectively, while China is only 30%, and there is huge potential for increasing concentration. This data shows that China's paint industry is in the early stages of increasing concentration, providing huge room for growth for leading companies in the industry. As a leading enterprise in the industry, Dongfang Yuhong is expected to reap the greatest dividends in this process.
On the other hand, Dongfang Yuhong's stable position in the large customer market and the room for growth in the retail market have provided strong support for the company's continued growth. The company continues to consolidate its market position in engineering channels, while successfully opening up new growth space by expanding retail channels and sinking the market, injecting new vitality into its long-term development.
Furthermore, the company is also actively deploying overseas, promoting “overseas” work, and developing overseas markets. Dongfang Yuhong has developed a series of international strategic layouts around international scientific research, overseas warehousing, overseas investment and mergers, overseas factory construction, overseas talent training, and overseas channel expansion, etc., and has realized diversified business models such as overseas engineering, trade, and retail. Financial reports show that in 2023, the company's revenue from other countries or regions reached 703 million yuan, an increase of 54.04% over the previous year.
The company is actively promoting the launch of overseas factories and establishing overseas strategic groups. Currently, it has set up overseas companies or offices in Vietnam, Malaysia, Singapore, Indonesia, Canada, the United States and other countries to lay a good foundation for consolidating overseas business development and expanding overseas market space. It is worth mentioning that last year, the company also signed a strategic cooperation agreement with Arkaz, a subsidiary of Saudi Arabia's Alturki Holdings, and Arkaz officially became the exclusive distributor of Oriental Yuhong thermoplastic polyolefin (TPO) roofing systems in Saudi Arabia. There is reason to believe that the overseas market is expected to become another growth pole for the company in the future.
3. Conclusion
In the current context where the industry as a whole has not fully recovered, Dongfang Yuhong has shown good recovery and growth momentum. By continuously optimizing sales channels and expanding product categories, the company has laid a solid foundation for future performance growth.
At the same time, the company's high-dividend strategy also gave the market a reassurance pill. Earlier, the company announced that the actual controller of the company proposed that the 2023 cash dividend ratio should not be less than 50% of the 2023 net profit. Following the release of the annual report, the company announced that the company would pay 0.6 yuan in cash per share in '23, with a corresponding dividend rate of 66%. The dividend rate corresponding to the current stock price is 4.2%, which is higher than the yield on 10-year treasury bonds. The move also highlights the company's active return to shareholders.
Looking back at the capital market level, Dongfang Yuhong's steady operation, healthy cash flow, and good dividend return make it more attractive in a market environment with high uncertainty. It will also win more market recognition for it, and is expected to bring opportunities for value revaluation. Let's wait and see.