Oriental Yuhong’s profitability has improved significantly, and the “second curve” has expanded the advantages of leading companies

The third quarter reports of listed companies are being released one after another, and the performance and trends of industry leading companies have attracted special attention. As a leading company in the building materials industry, Oriental Yuhong is already enjoying revenue and profit growth brought about by changes in organizational structure and channel structure while “accelerating its upward trajectory”.

On October 25, Oriental Yuhong disclosed its third-quarter financial report. The performance was remarkable: in the first three quarters, the company achieved stable growth in operating income, significantly enhanced profitability, and improved net cash flow from operating activities year-on-year: operating income was approximately 25.36 billion yuan, A year-on-year increase of 8.48%; net profit attributable to shareholders of listed companies was 2.353 billion yuan, a year-on-year increase of 42.22%; net profit attributable to shareholders of listed companies after deducting non-recurring gains and losses was 2.172 billion yuan, a year-on-year increase of 42.67%; net cash flow from operating activities Outflows were 4.76 billion yuan, 3.203 billion yuan less than the same period last year, and net cash flow increased by 40.22% year-on-year.

While the main waterproof business continues to grow, the non-waterproof business that Oriental Yuhong has focused on since 2015 has developed rapidly and has become a veritable “second growth curve.”

Profound changes in channels create new engines for revenue growth

In the first three quarters of 2023, Oriental Yuhong’s retail channel operating revenue reached 7.617 billion yuan, accounting for approximately 30% of the company’s overall revenue in the same period. Retail operating income increased by 37.01% year-on-year, far exceeding the overall revenue growth rate of 8.48% year-on-year, and has become a new engine for performance growth.

At the end of October 2018, Oriental Yuhong announced the “Decision on Organizational Change” and made drastic adjustments to the organizational structure. The original “1+6” business group was adjusted into Civil Building Materials Group, Engineering Building Materials Group, Tiandingfeng Company, Investment Holding company (new market cultivation). After focusing on the C-end retail business in 2021 with Civilian Building Materials Group and Deaiwei Company as the main bodies, the new organizational structure has shown great advantages. The Civilian Building Materials Group is growing rapidly, achieving operating income of 6.078 billion yuan in 2022, a year-on-year increase of 58%.

Channel changes are advancing simultaneously, with retail channels represented by Civil Building Materials Group and engineering channels represented by Engineering Building Materials Group becoming the main sales models. The Engineering and Building Materials Group has integrated companies in various provinces and regions. Through the integrated companies, it focuses on the local engineering market, implements localized operations and channel sinking, integrates local customers and dealer resources, and utilizes customers and channel resources in the waterproofing business to vigorously develop construction New product categories such as coatings, mortars, and insulation are sold. At the same time, we insist on giving priority to partners, upgrade the partnership system, and use “platform + maker” as the business management model to fully tap the potential of partners, increase market share, and promote both the company’s scale and efficiency.

2023
In the first half of the year, the company’s channel structure improved significantly. Among them, the operating income proportions of retail channels, engineering channels and direct sales channels were 29.98%, 36.45% and 31.08% respectively, which increased by 5.02% and 4.78% respectively.
and dropped by 8.37 percentage points; 2023
In the first half of the year, operating income from retail, engineering and direct sales business channels increased by 32.21%, 26.68% and decreased by 13.25% year-on-year. The channel structure was further optimized and efficient, and channel reform was fruitful.

Amid the drastic changes in the industry, Oriental Yuhong has faced the difficulties and chosen to carry out comprehensive and profound changes on the basis of maintaining its high-quality development strategy and continuously strengthening profitability, standing on the forefront and continuing to lead the development of the building materials industry.

Gross profit margin steadily increased and cash flow significantly improved

Oriental Yuhong’s sales gross profit margin in the first three quarters of 2023 was 29.06%, +3.23pct year-on-year, of which the sales gross profit margin in the third quarter was 29.38% (year-on-year +5.57pct, month-on-month +0.28pct). The company’s business structure continues to be optimized. The rapid growth of retail business with high gross profit margin and the continued contraction of construction business with low gross profit margin, as well as effective and reasonable cost control, are the main reasons for the increase in gross profit margin.

From the perspective of expense ratio, the company has good expense control during the period. During the first three quarters, the expense ratio was 15.84%, a year-on-year increase of only 0.24pct, and the pressure on the cost side was relieved. Among them, the sales/management/financial expense ratios were +0.83pct/-0.40pct/-0.14pct year-on-year respectively. In the third quarter, the sales/administration/financial expense ratios changed year-on-year by +1.27/-0.37/-0.54pct respectively.

Thanks to the substantial improvement in gross profit margin, the company’s net sales profit margin during the period was 9.28%, +2.29pct year-on-year, of which the net profit margin attributable to the parent company in the third quarter was 11.99% (+3.47pct year-on-year, +1.78pct quarter-on-quarter).

In the first three quarters, the company’s cash flow improved significantly year-on-year. During the period, the company’s net operating cash outflow was 4.76 billion yuan, which was 3.203 billion yuan less than the same period last year. This was mainly due to the company’s continuous strengthening of channel structure optimization and the rapid year-on-year growth in cash received from selling goods and providing services. Among them, the cash received from selling goods and providing services increased by 3.942 billion yuan compared with the same period last year, an increase of 19.56%, which was higher than the revenue growth rate in the same period. Among them, the cash received from selling goods and providing services in the third quarter was 8.247 billion yuan, which was 8.247 billion yuan compared with 2022. In the third quarter of the year, cash received from selling goods and providing services was 7.151 billion yuan, a year-on-year increase of 15.33%. Compared with the cash received from selling goods and providing services in the second quarter, it was 7.631 billion yuan, an increase from the previous quarter.
8.07%.

In the third quarter, Oriental Yuhong’s cash-to-cash situation continued to improve, with a cash-to-cash ratio of 96.93%, a year-on-year change of +8.34pct.

The new business segment has accumulated strong momentum to create the second growth rate��Curve

In 2015, Dongfang Yuhong initially completed its strategic layout in multiple product categories such as nonwovens, building energy conservation, mortar, energy and chemicals. In 2021, non-waterproof business will develop rapidly by taking advantage of the customer resources accumulated by relying on the main waterproof business, the synergy of the national sales channel network and good brand influence. The decisive leading corporate brand, far-leading market share, high-quality customer resources, channel advantages and top product research and development team enable Oriental Yuhong to achieve twice the result with half the effort when expanding new businesses, and have huge room for imagination.

At present, Oriental Yuhong has formed an operating system with its main waterproofing business as the core and diversified new businesses such as civil building materials, mortar powders, architectural coatings, energy-saving insulation, etc., to provide customers with a more complete one-stop building Building materials system solutions. Actively deploy nonwovens, special films, and VAE
Upstream industries such as emulsion and VAEP rubber powder not only improve the company’s supply chain risk resistance, but also further build the company’s deeper and wider moat.

Non-waterproof categories such as mortar powder and non-woven fabrics have strong growth rates. The company’s non-main business revenue scale has a CAGR of 41.18% between 2013 and 2022, and the revenue share has increased from 3.25% to 9.07%. It mainly contributes revenue to powder mortar, architectural coatings, insulation and non-woven fabrics businesses.

Judging from the 2023 semi-annual report, mortar powder achieved revenue of 1.905 billion yuan, a year-on-year increase of 42.99%, and its proportion of total revenue increased by 2.6pct
to 11.3%; the gross profit margin of mortar powder reached 28.23%; the company has deployed more than 700 sand powder professional engineering channel dealers across the country; production bases are spread across the country, and starting from the factory, it has established an integrated company of “research, production, supply, marketing and services” , striving to achieve nationwide
300 km supply radius 24
Mission must be achieved within hours. The mortar powder business has become another important growth point for the company after the waterproof membrane and coating business, providing a second growth curve for the company’s future sustainable development, which is conducive to optimizing the overall profit structure and cash flow.

Tiandingfeng Company, with an annual nonwoven production capacity of 280,000 tons, has more than 40 of the world’s leading “one-step” polyester spunbond needle-punched tire base fabric production lines. It has ranked first in the domestic market share for many years and is an important global company. Polyester tire base fabric manufacturer and supplier, with customers in 39 countries and regions around the world. The high-strength coarse-denier polypropylene filament needle-punched geotextile fills a major gap in the domestic geosynthetic materials market and has been used in a series of major national projects such as the Yangtze River Diversion Project to Huaihe River, Beijing Daxing International Airport, Xi’an Xianyang International Airport Expansion Project, and the Zhengzhou-Wanzhou High-speed Railway , Chengdu Metro Line 18, Dongying Port 100,000-ton channel project, and key national projects along the “Belt and Road” such as Mozambique Airport, Nepal Pokhara Airport, Cambodia Qixinghai International Airport, Cambodia Siem Reap Airport, etc.

In the construction waterproofing and building materials industry where “one super, many strong, and many tails”, Oriental Yuhong’s market share has ranked first in the industry for many years. From 2012 to 2021, ROE has exceeded 15% for ten consecutive years. In terms of R&D strength, The comprehensive competitiveness of products, process equipment, application technology, sales model, professional system service capabilities, brand influence and other aspects are among the best in the industry. With the formation, development, structuring and scale of the “second growth curve”, Oriental Yuhong is ushering in the “dual-core” era.