If you want to choose one of the many paint brands in China with the highest national recognition, 3Trees may be well-deserved.
From the well-known advertising slogan of "3 trees, live immediately" to the consistent high-quality coating products, 3 Trees, the national paint leader, takes user experience as the core to build a beautiful life system of products + services, bringing users a full sense of security.
The three trees (603737) in the capital market have always shown their excellent side to investors.
On April 19, 3Trees disclosed its 2023 annual report and 2024 first quarter report. Despite the complex industry environment, 3Trees' revenue has maintained steady growth. At the same time, a number of the company's core business indicators have been continuously optimized, and the development speed and quality are both.
The quality of operation has been optimized, and 3Trees has achieved steady and long-term success
In 2023, the domestic coating industry is in a slow recovery stage after experiencing twists and turns.
According to the statistics of the China Coating Industry Association, in 2023, the total output of China's coating industry will be 35.772 million tons, a year-on-year increase of 4.5%. The main business income was 404.48 billion yuan, a year-on-year decrease of 4.5%.
Against the backdrop of an increase in industry output and a decrease in income, 3Trees still delivered a good "report card".
In 2023, 3Trees achieved operating income of RMB12.48 billion, a year-on-year increase of 10%, and net profit attributable to shareholders of the listed company of RMB174 million. In the context of declining industry revenue, 3Trees' revenue has achieved growth against the trend.
In terms of products, in 2023, the revenue and gross profit of core products such as 3Trees Home Improvement Wall Paint and Engineering Wall Paint will continue to grow. Among them, the revenue of engineering wall paint increased by 9.52% to 4.68 billion yuan, and the gross profit margin increased by 2.58 percentage points.
In addition, the revenue of 3Trees' adhesives, substrates and auxiliary materials, waterproofing membranes and other products increased significantly, and the gross profit margin of each product increased to varying degrees, which promoted the overall increase in the company's revenue.
The growth of revenue is only one aspect, and the optimization and improvement of 3Trees' operating quality is more worthy of careful analysis.
For example, in terms of cash flow, in 2023, 3Trees' net operating cash flow will reach 1.408 billion yuan, a year-on-year increase of 47%. After a brief outflow of operating cash flow in the first quarter of last year, 3Trees achieved considerable positive cash flow in the second and fourth quarters.
In the long run, although the paint industry has been significantly affected by the real estate downturn in the past few years, 3Trees' operating cash flow has continued to grow against the trend, and it will climb to a high level in 2023. This shows that the company's operational stability and safety are continuously improving.
Thanks to the good operating situation, 3Trees' asset and liability situation has been further optimized and improved in 2023.
In 2023, 3Trees' asset-liability ratio decreased by 1.14 percentage points year-on-year. The company's monetary holdings increased by 61% year-on-year. While the revenue increased, 3Trees' notes receivable and accounts receivable decreased significantly, and the quality of operation improved steadily.
Innovation is the core driving force for the sustainable development of the coatings industry. In 2023, 3Trees further increased its R&D investment, reaching RMB290 million, a year-on-year increase of about 10%.
Last year alone, 3Trees developed 278 new products and 696 projects to upgrade old products and reduce costs. These products meet the needs of users for one-stop green building materials for the whole house, and also drive the high-quality development of 3Trees.
Strictly control the risk business and tap the new market demand
The impact of real estate industry risks on operations is a topic that all coating companies cannot avoid.
The business of paint companies, especially the downstream of wall coatings, mainly includes three ways: big B, small B and retail. Among them, Big B mainly refers to the centralized procurement of real estate developers, which is an important sales model in the industry.
In the past few years, affected by the downturn in the real estate industry, the operation of paint companies has been affected to a certain extent, and 3Trees is no exception. However, judging from the 2023 annual report, the impact of real estate risk matters on 3Trees has been basically eliminated.
The engineering customers of architectural coatings are mainly based on the direct sales model, supplemented by the distribution model. In 2023, 3Trees' direct sales model will generate revenue of RMB2.06 billion, which will further reduce its proportion in the company's revenue. Among them, the proportion of real estate direct sales business has dropped to a very low level.
Obviously, this is the result of 3Trees' insistence on promoting the process of de-real estate, deliberately shrinking the big B business, and actively controlling risks.
In addition, in the past, some real estate developers such as Evergrande exploded, which dragged down the performance of 3Trees. Judging from the financial report, the provision of bad debts has been basically completed, and the impact of risk events on 3Trees has been basically eliminated.
Of course, the pressure drop big B business is not a complete abandonment of the real estate business. It is understood that at present, the cooperation between 3Trees and private real estate mainly adopts the cash spot model and strictly controls large receivables, so that this business can be carried out in a good state of risk control.
A strong proof is that at the end of the first quarter of this year, the scale of accounts receivable of 3Trees has decreased significantly compared with the end of 2023 and the same period last year.
In fact, while the real estate industry is adjusting, new opportunities are also emerging. In recent years, the proportion of the paint market demand for the renovation and recoating business of the stock house decoration and second-hand housing and home secondary decoration in mainland China is increasing.
In the financial report, 3Trees also mentioned that it will continue to develop new channels, optimize channels and upgrade them, so as to become a new demand growth point in the paint market.
Strategically strengthen small B and retail, and optimize the business structure
While reducing the risk of large B business, 3Trees actively promotes the development of retail and small B business. In 2023, 3Trees will achieve revenue growth against the trend amid industry fluctuations, and the development of retail and small B businesses will become an important driving force.
In terms of retail, 3Trees adheres to the strategy of high-end, younger, service-oriented and online-oriented retail.
In terms of high-end retail, 3Trees has promoted the transformation of high-end retail and achieved a three-dimensional channel layout through home furnishing store experience stores and art paint experience stores.
Online, 3Trees has been deeply engaged in mainstream e-commerce platforms such as Taobao and JD.com, while vigorously expanding e-commerce channels such as Douyin and Kuaishou, building an online omni-channel coverage system, and developing new retail business, with the company's e-commerce new retail model growing rapidly.
By continuously expanding new channels, developing new momentum, and continuously developing retail business, 3Trees' retail business has maintained a steady growth trend, and its proportion in the company's revenue has continued to increase. In the first quarter of this year, 3Trees' retail sector also maintained a rapid growth trend across the board, with more than 200,000 outlets across the country.
The development of 3Trees' imitation stone paint business is a typical case of the company's great success in the retail business.
Many years ago, Hong Jie, chairman of 3Trees, discovered opportunities in the township market during his visit. In 2015, 3Trees established the "County and Town Engineering Department" to vigorously explore the beautiful rural market.
Today, the number of 3Trees imitation stone paint stores continues to increase. The company provides exterior wall coating services for more than tens of thousands of rural self-built houses and villas every year. 3Trees Imitation Stone Paint has achieved a compound growth rate of more than 60% for 8 consecutive years. According to data from the China Coating Industry Association, the market share of 3Trees Stone-Imitation Coatings has ranked first in the industry for many years since 2020.
Outside the retail market, 3Trees' small B channel construction is becoming more and more perfect, and the number of small B channel customers is also continuing to grow.
Different from the large B business, which is mainly oriented to real estate centralized procurement projects, the small B channel is mainly oriented to regional real estate, office buildings, hospitals, municipal and other projects where orders do not have continuity, as well as home improvement and complete decoration companies, with scattered terminals and high requirements for customized services.
The small B business is regarded as the top priority for the future development of the coatings industry.
In the financial report, 3Trees proposed that it will continue to optimize its channel structure and expand its high-quality tracks. Specifically, it includes focusing on the new track of central state-owned enterprises, urban construction and urban investment, and industrial plants, laying out small B-end application scenarios such as old reform, schools, and hospitals, and sinking county-level channels to expand channel diversification.
For example, in September last year, 3Trees provided Goldwind GWH204/5600 wind turbines in Inner Mongolia with a special anti-corrosion solution for wind power towers. This is 3Trees' first order in the field of wind power coatings, and it also means that 3Trees has officially begun to lay out the wind power coating track. There are many more such "first order" cases.
The decline in the dependence of the large B business, the continuous development of the retail and small B businesses, and the optimization of the business structure will lay a solid foundation for the subsequent growth of 3Trees.
The model wins and consolidates the position of the industry
3Trees was founded in 2002, when the mainland engineering coatings market was almost monopolized by foreign brands. It is the rise of national paint brands led by 3Trees that has broken this situation.
After more than 20 years of development, 3Trees' brand strength has been continuously improved, and its leading position has become more and more stable.
In March this year, the China Coating Industry Association released the list of China's top 100 coating enterprises, the top 70 Asia-Pacific coating enterprises, and the world's top 100 coating enterprises for the first time. 3Trees is the only top 10 company headquartered in China in the list of the top 70 coatings companies in the Asia-Pacific region, and the only Chinese coatings company to enter the world's top 20.
(Source: official website of China Coating Industry Association)
In the list of "China's 500 Most Valuable Brands" released in June last year, 3Trees ranked first in the paint list with a brand value of 44.516 billion yuan. The brand value increased by 6.448 billion yuan compared with 2022, an increase of 16.94%.
3Trees is a leading domestic paint company, but it is not just a paint product company. Over the years, 3Trees has continued to promote the company's transformation from a single paint manufacturer to a comprehensive service provider of "paint + service consulting + construction services".
From selling products at the beginning, to selling products + services, to selling "live now" painting services, and selling the concept of a better life, 3Trees continues to meet consumers' needs for one-stop green painting for the whole house
The unique product service model has also become the core competitiveness of 3Trees that distinguishes it from other coating companies. The company's high-end brand image is gradually established, getting rid of the situation of seizing the market at low prices like some foreign leading brands.
China has the world's largest paint market, and with the increasing development and maturity of the mainland paint market, the domestic paint market still has a lot of room for growth. For 3Trees and other national paint enterprises, this is a huge development opportunity.
In 2023, 3Trees' operating revenue hit a record high. But there is reason to believe that there is much more to Three Trees than that.
In addition, policy opportunities such as new national infrastructure projects, new urbanization, old city transformation, urban renewal, affordable housing construction, and rural revitalization will drive the growth of demand for paint and building materials.
3Trees said that under the influence of multiple factors such as the implementation of the national dual carbon strategy and the promotion of the construction of a beautiful China, the pace of business and category diversification and expansion of coating companies has accelerated, and they are no longer limited to the existing traditional paint business, but are actively expanding into the field of industrial coatings, with huge market potential.
Another industry trend that cannot be ignored is that after years of development, the mainland coating industry is ushering in a stage of integrated development. In the future, the market concentration of the domestic coating industry will accelerate.
In this process, some enterprises that lack core competitiveness will be gradually eliminated. Leading brands such as 3Trees are expected to gain a larger market share.
In the future, a more powerful world-class paint brand, 3Trees is worth looking forward to.