BEIJING NEW BUILDING MATERIALS(000786)：3Q22 SALES VOLUME UNDER PRESSURE;AWAITING DEMAND RECOVERY WITH AMPLE CASH RESERVE

　　3Q22 results miss our expectations
　　Beijing New Building Materials announced its 3Q22 results: In 1-3Q22, revenue fell 4% YoY to Rmb15.3bn, and attributable net profit dropped 14% YoY to Rmb2.34bn. In 3Q22, revenue decreased 15% YoY to Rmb4.94bn, and attributable net profit fell 20% YoY to Rmb708mn. The results missed our expectations and market consensus due to the lower-than-expected gypsum board sales volume.
　　1) Gypsum board sale volume was under pressure, and GM was stable. We estimate that gypsum board sales fell 27% YoY to about 500mn sqm in 3Q22, but its ASP remained high and grew 13% YoY (-2% QoQ). As a result, we estimate that the revenue from gypsum board fell 18% YoY in 3Q22, with per sqm gross profit slightly down to Rmb2.0/sqm (with positive YoY growth). We thus estimate the gross margin (GM) of gypsum board grew 2.2ppt YoY to 33.5% (-2.5ppt QoQ).
　　2) Other businesses slightly fell. In 3Q22, keel sales volume fell 2% YoY, but we believe its revenue was largely flat YoY due to price factors. The revenue of businesses other than gypsum board and keels (mainly waterproof) all fell over 10% YoY. BNBM’s blended GM was 29.2% in 3Q22 (-2.1ppt QoQ or +1ppt YoY).
　　3) Expense ratio increased slightly. Due to the decrease in scale and weakened dilution, BNBM’s blended expense ratio grew 1ppt YoY to 7.9% in 3Q22, with operating and G&A expense ratios up 0.6ppt and 0.4ppt YoY.
　　4) Net margin fell. In 3Q22, due to lower GM, higher expense ratios, and fewer other income streams, the operating profit margin fell 3.3ppt QoQ, and the net margin dropped 4.4ppt QoQ to 14.3% (-0.9ppt YoY).
　　5) Accounts receivable increased slightly by Rmb418mn QoQ to Rmb4.2bn in 3Q22, and accounts payable were largely stable.
　　6) Cash flow remained solid. The cash flow-to-revenue ratio fell 6.2ppt YoY to 92.2%, and net operating cash inflow fell Rmb431mn YoY to Rmb1.5bn. Its net cash flow-to-revenue ratio dropped 6ppt YoY to 64%. However, in 3Q22, the cash flow-to-revenue ratio reached 96% and the net cash flow-to-revenue ratio was 92%. Capital expenditure was Rmb903mn in 1-3Q22 and Rmb321mn in 3Q22.
　　7) High-quality balance sheet. In 3Q22, the firm’s debt-to-asset ratio was only 28.1%. It is largely in a net cash position and maintains a low-cost debt structure. We think this indicates its sound and solid operations.
　　Trends to watch
　　Demand slowly recovering; awaiting industry upturn with ample cash reserve. We believe that the recovery of housing completions may remain slow in 4Q22 and 2023. The pressure on the service industry may also delay the demand for gypsum board replacement from commercial buildings. The overall recovery in demand may thus be slow. However, BNBM has ample cash reserve and a low debt cost as a state-owned enterprise. Once the sector and demand rebound, with support from strong cash flow, we expect BNBM to accelerate the expansion of waterproof product capacity and obtain local distributor resources, achieving high revenue growth.
　　Financials and valuation
　　As demand from housing completions remains under pressure, we lower our 2022 and 2023 revenue forecast by 9% and11%, and cut 2022 and 2023 EPS forecasts by 20% and 22% to Rmb1.79 and Rmb2.03. The stock is trading at 12.5x 2022e and 11.0x 2023e P/E. Maintain OUTPERFORM. We cut our TP 25% to Rmb30 (16.8x 2022e and 14.8x 2023e P/E), offering 35% upside.
　　Risks
　　Weaker-than-expected demand for real estate project completion; commercial service business remains under pressure; expansion of waterproof business disappoints.
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   【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。