Recently, 3Trees Co., Ltd. (603737.SH), a leading enterprise in the domestic coating industry, released its 2023 annual report, with outstanding performance. In 2023, 3Trees will achieve operating income of 12.48 billion yuan, a year-on-year increase of 10%; The net profit attributable to shareholders of the listed company was 174 million yuan, and the net operating cash flow reached 1.408 billion yuan, an increase of 47% year-on-year. Against the backdrop of the industry downturn, how can 3Trees achieve countercyclical growth? What is the development logic behind this?
Looking at 3Trees' performance in 2023, it can be seen that 3Trees' continuous promotion of the "de-real estate" process and the high-end retail transformation and upgrading strategy have achieved remarkable results, with the proportion of real estate business continuing to decline, and the retail and small B businesses performing well.
Specifically, 3Trees focuses on the small B-end market and C-end channels. Small B-end customers mainly cover non-real estate fields such as regional real estate, office buildings, and home improvement companies, while the C-end market is directly oriented to end consumers. In recent years, the real estate has declined, and the importance of the small B-end and C-end markets has become increasingly prominent. It is estimated that in the domestic architectural coatings market in 2022, the total market space of small B-end and C-end will be as high as 92%. As early as before, 3Trees has been actively deploying, not only focusing on the expansion of new tracks such as central state-owned enterprises, urban construction and urban investment, and industrial plants, but also focusing on small B-end application scenarios such as old reform, schools, and hospitals, and vigorously exploring the beautiful rural market. In 2022, the number of 3Trees Small B customers has grown to more than 20,000, and its revenue has also increased to 3.84 billion yuan, and according to the 2023 financial report, the number of small B customers continues to grow.
In the C-end market, 3Trees has laid 200,000 outlets covering the whole country offline, building a channel moat. At present, the number of followers of Tmall and Jingdong stores has surpassed that of international brands such as Nippon, and continues to transform and develop towards high-end and younger.
In addition to channel reform, 3Trees also adheres to an innovation-driven development path. In 2023, 3Trees will spend RMB 289 million on R&D, develop a total of 278 new products, apply for 130 invention patents, and continue to promote the upgrading of its product matrix. Up to now, 3Trees has mastered more than 700 patents, participated in the formulation of 103 national and industry standards, and was awarded the National Intellectual Property Demonstration Enterprise. It can be said that strong R&D strength has become one of the core competitiveness of 3Trees.
Last year, the sales volume and revenue growth of 3Trees' main products were improving, and the revenue and gross profit of core products such as home improvement wall paint and engineering wall paint continued to grow. The revenue of adhesives, substrates and auxiliary materials, waterproofing membranes and other products increased significantly, with a year-on-year increase of 29.49/41.02/26.91% respectively. At the same time, with the rapid development of the beautiful rural market, 3Trees Imitation Stone Paint has achieved a compound growth rate of more than 60% for eight consecutive years, becoming a new growth engine for the company.
After 20 years of high-quality development, 3Trees has accumulated strong development momentum and has become one of the leading national coating enterprises that has broken the monopoly of foreign capital. What is even more commendable is that Hong Jie, the founder of 3Trees, has not reduced his holdings in eight years since the company went public in 2016, and still holds 67.02% of the company's shares. At the same time, 3Trees has also implemented a multi-phase employee stock ownership plan, and the employee stock ownership coverage rate has reached 30%, demonstrating the firm confidence of 3Trees employees in the company's development prospects from top to bottom. In the first quarter of 2023, Huabao Ecological China Hybrid Securities Investment Fund, a subsidiary of Huabao Fund, became a shareholder of 3Trees. In the third quarter, BNP Paribas and Chinese Insurance became shareholders of 3Trees. Invesco Great Wall's two funds have increased their holdings by more than 3.6 million shares compared with the 2022 annual report. Institutions continue to enter the market to "buy the bottom", also out of optimism about the performance of 3Trees.
(New and overweight institutions in Q3 2023)
Looking at the global coating industry, there is still a lot of room for improvement in the concentration of the Chinese market. According to the data, the CR10 of the mainland coating industry is only about 30%, while the index of developed countries such as the United States and Japan is above 90%. With the improvement of product standards and the upgrading of consumer demand, small and medium-sized coating enterprises will accelerate the clearance, and the trend of industry integration is becoming more and more obvious. In this context, leading enterprises that master the barriers of channels, technology, and brands will fully benefit. Taking 3Trees as an example, the company has built an extensive channel network and established a good brand image with years of technology precipitation. In the process of increasing industry concentration, 3Trees is expected to continue to increase its market share.
In addition, from the macro environment, the country vigorously develops new urbanization, urban renewal, old community renovation and a series of policies will release a large number of building materials coating demand. Consumers' yearning for a better life has also promoted the upgrading of paint consumption from "rigid demand" to "quality". Stock transformation and consumption upgrading will become the dual driving force of the coating industry, which will undoubtedly benefit 3Trees and other leading enterprises in the industry.
Relying on multiple advantages such as channel reform and innovation-driven, 3Trees has delivered a brilliant report card against the backdrop of the industry downturn. Looking ahead, with the opening of the era of stock housing and the acceleration of industry integration, 3Trees is expected to usher in a new round of growth curve. As a leader in the coatings industry, 3Trees' resilience and potential are worth looking forward to.
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