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欧博网址:ORIENTAL YUHONG(002271):3Q22 EARNINGS REVIEW:RELATIVE STRENGTHS SHINE IN “DARKEST HOURS”

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,  Oriental Yuhong reported cumulative operating revenue/attributable net profit (ANP) growth of +3.07%/-38.20% YoY in 1-3Q22, with 3Q22 revenue/ANP falling by 4.51%/39.65% YoY, yet still outperforming most peers in the industry. We believe that the Company’s earnings pressures have been basically reflected in its current valuation and that it stands well to regain stable top-line growth in 2023 given the low comparable base this year. Additionally, we think the worst time of margin squeezes has passed and there will be good earnings elasticity going forward. We reiterate the “BUY” rating.
  3Q22 results: Oriental Yuhong outperformed most peers, despite a slowdown in both top-line and bottom-line growth.
  The Company achieved cumulative operating revenue of Rmb23.379bn (+3.07% YoY), ANP of Rmb1.655bn (-38.20% YoY) and ex-one-off ANP of Rmb1.522bn (-38.34% YoY) in 1-3Q22. In 3Q22 alone, the operating revenue was Rmb8.072bn (-4.51% YoY), ANP was Rmb688mn (-39.65% YoY) and ex-one-off ANP was Rmb632mn (-38.15% YoY)。
  Operating revenue: In line with expectations; better than peers.
  Historically, the Company's 3Q operating revenue tends to decline sequentially, mainly because Jul and Aug are both construction off-seasons.
  The revenue in 3Q this year is largely on par with that in 2Q, despite multiple headwinds including the scorching summer and Covid flare-ups in parts of China, reflecting a rapid increase in market share. Judging from the shipment of cement and the operating rate of bitumen/asphalt, we believe that industry demand will recover as construction conditions improve starting from late Sep.
  GPM: 3Q could be the most stressful quarter.
  The Company’s gross profit margin (GPM) fell by 5.14ppts YoY and 2.13ppts QoQ to 23.81% in 3Q22. The sequential decline is mainly because of rising asphalt costs since 2Q22. According to data provider Sublime China, the nationwide average selling price (ASP) of asphalt was Rmb3,904/t in early Apr and rose to Rmb4,733/t at the end of Jun. the Company’s raw material cost in 3Q22 was higher than that in 2Q22. Since the ASP of asphalt has declined moderately recently and the cost of non-asphalt raw materials is also trending downward, we think that the pressures on the Company’s GPM have already peaked, thus the “darkest hours” may have passed.
  Expense ratio: Well under control.
  The Company’s expense ratio was 14.17% in 3Q22, an increase of 0.32ppts YoY and a decrease of 0.28ppts YoY. Given the YoY decline in revenue, we think the expense ratio is well-controlled, reflecting the Company’s disciplined expense control and its “wolfish” and efficient corporate culture.
  Cash flow: Significantly better than the same period last year.
  The Company’s net cash flow from operating activities was Rmb-982mn in 3Q22, a significant improvement compared with Rmb-2.793bn in the same  period last year. Additionally, its accounts receivables as of the end of 3Q22 increased only moderately compared with that at the end of 1H22, indicating good collections in 3Q22. Considering that 4Qs are traditionally the peak season for cash collection, we anticipate that the annual net cash flow from operating activities will match its annual net profit this year.
  New waterproofing regulations come as a boon for the sector.
  On Oct 24, 2022, the Ministry of Housing and Urban-Rural Development (MOHURD) issued the “General Specification for Waterproofing in Construction and Municipal Engineering”-effective on Apr 1, 2023-and all provisions are mandatory. The introduction of this specification means that the waterproofing industry has a programmatic document to guide the industry to high-quality development, which is of great significance and will help expand the market size and facilitate market share concentration to top players. As a leader in the waterproofing sector, Oriental Yuhong is well-positioned to benefit from industry standardization and quality improvement.
  Potential risks: Infrastructure and real estate demand misses expectations. The cost of raw materials rises sharply. The Company’s collection of receivables misses expectations. The Company’s cost control and efficiency improvement miss expectations.
  Investment recommendation: We believe that Oriental Yuhong’s earnings pressures have been basically reflected in its valuation and that it stands well to regain stable top-line growth next year given the low comparable base. Since the margin squeezes have peaked, we anticipate solid earnings elasticity going forward. However, considering that its demand recovery and cost cut have failed to meet our expectations, we trim our 2022E/23E/24E ANP forecast to Rmb2.953bn/ 4.261bn/5.866bn (vs. previous forecast of Rmb4.222bn/5.456bn/6.991bn), corresponding to 16x 2023E PE at the current price, which, in our view, appears appealing. The Company’s historical median valuation over the past decade is 27x, but considering the uncertainty of the macro environment, we assign 20x 2023E PE to derive a target price of Rmb34 and reiterate the “BUY” rating. 【免责声明】本文仅代表第三方观点,不代表和讯网立场。投资者据此操作,风险请自担。

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