Nippon Paint Holdings Co Ltd
TSE:4612
Earnings Call Analysis
Q4-2023 Analysis
Nippon Paint Holdings Co Ltd
The company reported a robust performance with an 8.4% increase in revenue to JPY 356.7 billion, and operating profit soared by 23.5%. This reflects the company's ability to not only grow the top line but also to significantly improve profitability.
While the company achieved an overall revenue growth of 6% and an 11.1% increase in operating profit on a non-GAAP basis, it faced challenges in specific areas such as the NIPSEA region in China. Here, revenue increased, but operating profit decreased due to higher logistics and advertisement expenses. Despite these challenges, the overall results almost met the upwardly revised guidance from the previous November, marking record highs in revenue and operating profit for the year.
Looking ahead, the company expects total revenue growth of around 11% to reach a record JPY 1.6 trillion and an operating profit increase of approximately 9% to JPY 184 billion. The operating profit margin is projected to remain flat at 11.5% year-on-year, excluding one-off factors. These expectations are based on the success of past strategies and a proactive approach to M&A activity.
The automotive business witnessed revenue growth in Japan and the Americas due to a recovery in auto production, but it experienced a slight decline in China. The decorative business encountered a decrease in revenue due to a reduction in units produced by Japanese and European OEMs.
The company has a positive outlook for China, expecting to grow by 5% to 10% and maintain last year's profit margins. It plans to extend its reach to local customers beyond its focus on Japanese clients while promoting solutions for new builds as well as exterior coding for housing and public buildings.
Despite an economic slowdown, the company remains optimistic, with strategies aimed at expanding market share and enhancing business models through aggressive measures. The adjacencies business, which offers total solutions to sales channels in various regions, is expected to continue its steady growth.
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Thank you very much for waiting. We would now like to start Nippon Paint Holdings Financial Results Presentation on fourth quarter of FY 2023. [Operator Instructions] We have Japanese-English simultaneous interpretation. So Wakatsuki-san, Tanaka-san, please start.
Thank you very much. Good afternoon, ladies and gentlemen, I am Wakatsuki, Co-President of NPHD. Thank you very much for taking time out of your busy schedule to join us today. I would now like to present an overview of FY 2023, Q4 and full year financial results and FY 2024 full year forecast.
Media is also invited to attend the Q4 and Q2 financial results briefing. First, Page 2, please. The content remains unchanged, but we included supplementary information as we are frequently asked about it. There is no change in the difference between the Tanshin basis and non-GAAP basis, as stated here. Regarding FX rates, we apply the same assumption for FY '24 full year forecast as in FY 2023. Therefore, FY '24 results will be higher if the yen depreciates against this rate and lower if the yen appreciates.
The table next to this shows the FX sensitivity estimate based on FY 2023 results. We hope you will find this useful. Next, Page 3, please. FY 2023 Q4 summary. On Tanshin basis, revenue was JPY 356.7 billion, up by 8.4% and operating profit was JPY 37.1 billion, up by 23.5%, continuing a significant increase in revenue and profit. Positive factors in revenue were attained volumes, adjacencies business, favorable effects and new consolidation.
The price and mix deteriorated slightly in China and Asia, including Indonesia and Malaysia, while the rest of the world was generally improved, resulting in a slight decline overall. On non-GAAP basis, revenue increased by 6% and operating profit increased by 11.1%. In NIPSEA, China for decorative business, TUC revenue increased by 8% and TUB decreased by 1%. Operating profit for NIPSEA, China as a whole decreased due to high logistics and advertisement expenses despite higher revenue and improved RMCC ratio.
Revenue for automotive business increased in Japan and the Americas, thanks to ongoing recovery in auto production, but declined slightly in China due to a fall in the number of units by Japanese and European OEMs.
Next is Page 4, overview of FY '23 full year results. Our results were almost in line with the guidance revised upwards in November last year. They marked a record high revenue and operating profit.
On Tanshin basis, revenue increased by 10.2%. Operating profit and profit attributable to owners of parent increased by approximately 50%. And on a non-GAAP basis, excluding FX and new consolidations, revenue increased by 8.4% and operating profit increased by approximately 30%. All regions generated great results in a difficult environment. In addition, the adjacencies business is also growing steadily as we push ahead with the provision of total solutions to our sales channels in each region.
In operating profit on both Tanshin and non-GAAP basis, we recorded a provision of just under JPY 6 billion in China for the full year of 2023. And the impact of the hyperinflationary accounting in Turkey is approximately JPY 5 billion. While hyperinflationary accounting will continue in Turkey in 2024, we do not expect any major provisions in China at this time. We believe that our real-term results are above these financial figures given that inflation in Turkey will eventually subside at some point.
Next, Page 5, please. FY 2024 full year forecast. As mentioned earlier, assuming constant FX rates compared to 2023, revenue is expected to grow organically by approximately 7% to 7.5%, thanks to the aggressive measures to increase market share and enhance agents and [ seed ] business, while new consolidations are expected to contribute approximately 3.5% to 4%, including 1 year's contribution from Alina in Kazakhstan, where the acquisition was completed and 6 months from 2 Indian business which are currently pending approval from the authority.
The total growth is expected around 11% with record high revenue of JPY 1.6 trillion. Our efforts to date as an asset assembler are steadily bearing fruit. And although not included in the forecast, we will continue to actively pursue M&A this year. Operating profit is expected to reach JPY 184 billion by up by approximately 9%, with OP margin of 11.5%, which is flat year-on-year and almost flat on non-GAAP basis, excluding one-off factors, assuming that trends in raw material remain constant, we will take aggressive measures to expand market share, and we'll use the margin improvement resulting from operating leverage to reinvest in promotions and other activities.
OP margin for new consolidation based on unaudited results for FY 2023 is expected to be around 20% for Alina and around 5% for India, and the combined OP margin for both regions in 2024 will be roughly the same as the consolidated level. Pages 6 and 7 show the assumptions for the forecast of the main segments. I will go into detail in the Q&A session, but I will comment briefly on each area.
Japan segment showed a dramatic recovery in 2023, but revenue for automotive is expected to decline slightly, reflecting a flat outlook for auto production, while market share expansion is expected for both decorative and industrial applications, thanks to a slight recovery in market conditions, and total revenue for marine applications will increase slightly backed by continued strong demand.
OP margin for Japan as a whole is expected to remain largely unchanged for the full year under these circumstances. For NIPSEA China, we factored in the economic slowdown and we'll continue our growth strategy centered on TUC. In TUB, we will aggressively promote not only new builds but also exterior coding for housing and public buildings aiming to diversify revenue forces and improve growth and profitability.
In the automotive business, we expect to increase sales this year by expanding our business from the traditional focus on Japanese customers to local customers, and we expect NIPSEA, China as a whole to grow by 5% to 10% and to achieve profit margin of last year's level. In NIPSEA except China, we continue to expect sales growth of 10% to 15%, except for Betek Boya where we expect growth of 5% to 10%.
Margin will also continue to be affected by the hyperinflationary accounting in Turkey, but is expected to be at the previous year's level. In DuluxGroup, we expect growth of just under 10% in both the Pacific and Europe with margin flat in the Pacific and improvement in Europe. In Europe, organic growth is expected to be around 5%, with a full year contribution from MPT. And in the Pacific, organic growth as expected to be just over 5%, with a small acquisition made last year contributing to growth of just under 10%.
In Americas, we expect 0% to 5% growth in automotive and 5% to 10% growth in decorative. Finally, on the new consolidations, please note that although Kazakhstan and India are expected to contribute for the full year and 6 months, respectively. In the forecast, these prior year comparisons are based on the full year figures for India as well. PPA has not been completed, but both will contribute to EPS from the first year.
Next, Page 8. As for raw material trends, although there were some regional differences in the price mix in the fourth quarter of fiscal year '23, the growth profit margin as a whole improved year-on-year and quarter-on-quarter, and we expect a slight decrease in the RMCC ratio in our full year forecast for 2024.
Although the global economy is in the down trend with declining demand, it is somewhat difficult to make generalizations because of the severe economic trends and the impact of foreign exchange rates in some regions.
Moving on to Page 10. This is an overview of the fourth quarter of fiscal year '23. Details may be added in the Q&A. But in general, as per the guidance, sales in Japan exceeded expectations due to strong sales in the automotive and marine sectors. While in China, although sales were down year-on-year, PUC sales were slightly below plan, while TUB sales were above plan during the most quiet season of the year.
We believe this is effectively in line with our expectations when considering [ 6 costs ] such as promotion of the installation of CCMs and advertising expenses were increased. In fact, looking at the second half or third quarter and fourth quarter of fiscal year 2023, there was actual increase in profit, taking into account subsidies and provisions for fiscal year '23. And as I mentioned earlier, we expect both sales and profit to grow in fiscal year '24.
Page 11 major topics. As already announced, the M&A deal in Kazakhstan has been successfully closed and will make a full contribution to this year's EPS. We've also held a briefing session on the integrated report and have received valuable feedback. Since it was held after some time from the publication, we hope to issue the report a little earlier this year and to hold these briefings as soon as possible following the publication.
Finally, on Page 25, we've provided a brief explanation of what is often asked, which is the seasonality factor for each region. Since the growth occurs in each quarter, the order does not indicate actual numbers, but rather a highs and lows of demand under the same economic environment. I hope you will find this useful. We are trying to make improvements on the other pages as well. And we would appreciate it if you could let us know if you have any further comments or suggestions.
Once again, we believe that the 2023 results and our projection for 2024 are a sign of strength demonstrated by each partner company as well as the effectiveness of the asset assembler model. We will continue to exercise a healthy degree of caution and remain committed to building up EPS.
Finally, on the 4th of April, we are going to be holding a briefing session on the medium-term management plan. This concludes my presentation. And now I'd like to take your questions. Thank you for your kind attention.
[Operator Instructions] First question from the Japanese channel. First question is from Nomura Securities, Okazaki-san.
This is Okazaki. I have a question on China. On Page 4 of your supplementary material, you have some data. Q3 and Q4 need to be watched at the same time from Q3 to Q4 margin declined significantly. You mentioned the advertisement expenses. So what is your view? And in the new year, PUC Q4, I think the revenue increase is strong and you are increasing share in Tier 3 to 6 cities. So what is your view and your projection?
Thank you, Okazaki-san for your question. As I said earlier, first Q4 in China, is a slow season. And so revenue-wise, it is generally low, but the fixed cost is incurred. And so margin is rather difficult. And we have a conservative view on margin. On the other hand, it's not just Q3, Q4, but on a full year basis, we worked hard. So towards next fiscal year, we did some investments.
In Q3, we suppressed the fixed cost a bit the SG&A. And in Q4, we did investments for next year, the inflation of CCM and the advertisement, we did quite a big amount. And as a result, China results were strong. So FY '24 namely in PUC, we will continue our growth strategy. And as you rightly said, Tier 3 to 6 cities, we have good traction in the progress. And of course, Tier 1 to 2 cities will continue. The economic situation is not that good, but we focus on increasing market share. And the good news is that our competitors, as [ Wi-san ] mentioned last year, the smaller ones, smaller players are now withdrawing from the market.
And in the U.S., there are some players who withdrew from the market in January. They're all small players, but sometimes they just withdraw, exit the market or join hands with us, not in the form of the capital participation, but have the production done under the brand, our brand. So our strategy is moving forward efficiently. [ NTUB ] as I said earlier, the new build were less dependent on new build residential market from Q4, schools and public sectors, refinish or repainting, we're seeing a progress there and margin is improving there.
So overall, operating leverage will improve. And on that basis, subsidy we had a little over JPY 8 billion subsidy. But even without subsidies, we can have the same level of margin as last year for automotive and for industrial included. In Q1, there's not much we can say at this point. But in March, March is the biggest month of the year. So the trend in March will probably be the touchstone for us going forward.
At this point, we have sufficient validity of our strategy. And so that is the background to this guidance.
One point. So TUC growth in the fiscal year quarterly revenue declined quarter after quarter. But the share increase in Tier 3 to 6 cities. You think you can accelerate? So you think you have good traction in your sales?
Well, revenue -- its revenue. So there is the mix of the volume. We have good volume, big volume, but the increase in the tier 3 to 6 cities and Tier 1 to 2 cities. Unfortunately, there is some trade down. So in total, we think we can achieve the level shown in the guidance. China is a dynamic market. So we have confidence there.
On the other hand, if situation changes, we will let you know and there may be some upside and downside.
Next question is from CLSA Securities, [indiscernible].
This is [indiscernible] speaking from CLSA. My question is, so regarding the profit driver for this fiscal year, if possible, how much is our organic growth and how much is by M&A contribution, especially your subsidiary in India and in Central Asia, when we do a rough calculation, I think there's JPY 5 billion impact from M&A. And in this fiscal year. Regarding profit increase, can you please give me some color on that projected increase of profit?
On Page 5. So 11%, around 11% growth as expected for profit contribution. And this is excluding one-off factors. On Tanshin basis, it's 9%. It was JPY 8.5 billion last year. This was the decline, but there was provision for China, which amounted to about JPY 6 billion. And when taking these into account 3.5% to 4% is going to be the profit increase coming from consolidation. So I believe there aren't much differences in the numbers.
So 60% to 70% or 80% is existing business and new consolidations -- can I assume it will account for about 30%? Was 7.5% to 8% out of 11% is organic growth and new businesses 3.5% to 4%?
So it depends on how you do the calculation. So I think the ratio will be 70% to 30%. Roughly speaking, organic growth is expected to be quite strong.
I see. And my second question is regarding China. Well, regarding peers, [indiscernible] is projecting flat performance, but you're projecting 15% growth. Can you please elaborate on the market share? Have you been able to take market share because your peers are projecting flat growth for this fiscal year. So what is driving this projected growth?
Are you talking about TUC?
Yes, TUC. Decorative. Your assumption is 15% growth for TUC. And when I look at the peers in the first half of the year, they're expecting flat growth. There is much gap. So if possible, can you please elaborate on this point?
In TUC, as we've been saying, we have the #1 -- well, there is a gap with the #1 position. Market share is 25% or 26%. And the #2 and #3 companies have single-digit market share. And the top 3 companies only account for less than 40% share. So there's -- the remainder that is 60%. And the majority of them are in Tier 3 to 6 cities, which is underdeveloped from our point of view.
And inclusive of the investment efficiency, we have been able to improve performance there. And at least based on our experience so far in various regions where we are strong, we already have the foundation to become even stronger. And in smaller markets, we may be able to acquire more market share because the peers are withdrawing. And I believe we are looking at the world from a different level perspective, even though I don't want to sound arrogant, but I think we have a very strong brand capability that allows us to look at the world in this way, which is different from our peers, and we believe we'll be able to achieved this strong growth.
Probably regarding our projections regarding economic environment, I think we all share the same understanding that it's going to be a tough year. So we will have a sound consciousness so that we'll be able to hit the margin target.
I see. And regarding M&A in India. I think there was a media report saying that the price decrease is happening among the local companies, but you are expecting flat profit, if possible, can you please talk about the overall situation of the business in India?
Okay. Regarding India, what we haven't closed. So I have to reserve my comments on the details. But as we explained in last August, Karnataka and Tamil Nadu, in these 2 provinces in India, we have been doing aggressive promotions to acquire market share and profitability. And we've been able to take good market share and profitability.
And that view has remained unchanged at this point in time. But in the second half of last year, the Indian market situation was not necessarily ideal. That is why we're expecting reasonable growth in maintenance of flat margin, but we'd like to outperform the market as a minimum requirement because that's what we achieved last year, and we are confident we can do that this year as well.
So I think we've been implementing a focused strategy and it's starting to bear fruit, and our view has remained unchanged since last August.
Next question is Mizuho Securities, Yoshida-san.
This is Yoshida from Mizuho Securities. I have a question on Japan Q4 -- from Q3 to Q4, your profit margin improved quite significantly. So what's the background in auto paint of the price structure? Is there a bulk or some one-off or some nonrecurring factors included here? And the profit margin is 9.5%. It's flat. This Q4 level will continue into next year? Or is that unlikely?
First, I would be happy if this Q4 level continues into next year, but it was rather high, a bit higher than what we are -- so it's not that there is big tailwind. We think we can at least achieve the previous level. Now in terms of one-off factors, there are some the transfer price related factors, which led to an upside, but that is not a big factor.
Auto volume is growing and operating leverage is effective. And in Marine, compared to 2 years ago, price increase is possible with the strong demand. So in total, a little less than 10% is sufficiently achievable. We have a good foundation to achieve such level. But unfortunately, we cannot say that 12.5% is the normalized level, not just yet. But internally, we are always aspiring for higher and set this as a minimum level and try to achieve a higher level.
Understood. This year, [ OPM ], you said you will maintain this level. This year, the decorative plus 5% to 10%. Could you elaborate on that point?
So that's Japan decorative?
Yes, plus 5% to 10%.
Last year, volume declined and we offset that with price increase. And as the price raise ran it's course through various sales measures. The market will recover, we think. So the volume, we think this is achievable 5% to 10% is not that aggressive as a target. So we think we can achieve that level.
The market itself is not weak. On a year-on-year basis -- so it's expected to be positive. And so the market will be positive, and we will increase the market share on top of that.
[Operator Instructions]
Millennium Capital, [indiscernible].
This is [ Bajada ] of Millennium Capital. I think everyone is attending some [indiscernible] on conference call. I have a question about the cash flow. Well, I am not fully aware of the seasonality. And there was something I noticed this time. Up to the third quarter, I think trade receivables had negative impact in the cash flow. So the cash flow was not really in a good position compared to the performance.
But recently, we've seen some positive impact. Is it because of the collection making progress? Or are there any uncollected receivables that are recently collected? Are there any assumptions that should I be aware of?
Well, in Q4 in China, well, as I've been explaining every time, in TUC, we collect everything. This is the norm. So in terms of seasonality, cash collection tends to happen more in Q4. On the other hand, in TUB from the second half of last year, we've been doing cash on delivery in many cases. So recently, we don't have many collection issues.
In some areas, well, this is also related to provision, but there are some things that are returning. Overall, in terms of the environment, I think it has been improving. But I think this is largely due to the seasonal reason.
So is it fair to say that there is no deterioration and there is less risk of having [ bad ] debt?
Well, basically, our transaction is in cash in TUC. And in TUB, when we tried with developers, we have long-term receivables. But in these 2 years or so, we have been able to provide for those long-term receivables. And as I mentioned earlier, developers include very important clients, but we have been making very strict judgment on the risk, and we've been focusing on diversifying the revenue source. In exterior coating, for example.
Therefore, in this fiscal year, large provision is not expected and exposure is quite limited at this point in time.
I see. If that is the case, well, unless this receivables increase. I think there is JPY 180 billion cash. And if the CapEx is JPY 50 billion, cash flow will be JPY 130 billion or JPY 150 billion, which is quite large. So in terms of free cash flow, are you trying to downsize the liabilities on the balance sheet? Or are you satisfied with the current debt-to-equity ratio? What are you planning to use the cash for? And I'd like to confirm if the calculated amount of free cash is correct.
Well, regarding the soundness of balance sheet, we are confident. So in terms of cash flow, I'm not going to comment on the exact number, but we have accumulated cash. And basically, it will be used for M&A and building up EPS. I believe that is going to contribute to the growth overall.
And we don't want to look at M&A as the purpose. We like to identify low risk fair valuation M&A deals. And we are constantly considering and exploring such opportunities even now. I believe that is going to be one of the options of using cash. So it's not only about repaying debt. That is not the purpose. But we need to increase a dry powder that is the management that we're doing around cash management. So in the midterm plan, I'm looking for to an update regarding the cash flow.
Next question is [ Coating ] Media, [ Kondo-san ].
[ Coating ] media. I'm Kondo. So Japan business is my question. Auto and decorative and industrial in 3 segments. What is your understanding of market share and the key strategies, please? The numbers -- the latest numbers will be discussed again in April. But for automobile, we are #2.
In Japan, there are 2 players accounting for a significant portion. And there are other players, too, but we are slightly behind the first player. In the Decorative, we have the top share. But there are 2 other players who are fairly close to us. So we have around 30% each. And for industrial, industrial is broad. So in oil coating, we have a high share. And in the agricultural and construction machineries and powder. These are rather fragmented and diverse. But we are the top manufacturer for sure in industrial as well.
So these positions have not shown much change. There are some who are raising market share and the automobile share may be rising a bit.
In industrial, there are different players with different focus or...
Yes, we are focusing on all. We are aggressive and we're greedy, and so we are trying to focus and increase our market share. We're working to raise profit. So in various businesses, we are active. Of course, the focus priority is to deliver to our customers good products, high-quality products to our customers.
We have good technical expertise. We're confident of our technical prowess. So we want to enhance our position.
One more question, minus 5% in automotive. What is the factor behind this estimate?
As I said earlier, fiscal '23, automotive production recovered quite significantly in FY '24. We think it will be roughly flat. In some areas, we were behind our peers. So there may be some revenue decline. The line is decided well in advance. And so we cannot recover overnight. But there are some non-OEM segments like parts, line, and home business, which we are focusing on now, we hope we can recover in those other areas, too. But at this point, our estimate is a slight decline in revenue.
Next question is from BofA Securities, Enomoto-san.
This is Enomoto-san of BofA Securities. So on Page -- well, I think there was a page about the market environment in the deck, I think it's Page 9, and there is -- and on earlier pages, there is your projection. I'd like to talk about how they compare. In 2024, market environment is expected to be flat in all the regions. You have the same color for all the regions.
Well, this is pretty straightforward, but well, be a China where elsewhere you're expecting growth in all the regions.
Is it because of the market share increase or is there any expected market environment improvement that is not described with the color? Can you please give me some more details?
Well, regarding the color used for market environment, it doesn't mean 0, but maybe 1% to 2%, 2% to 3% such growth will be shown in green. So overall, we are expecting flat growth. In Asia, it's 5% to 10% and plus 5% is expected in various other places. And these are largely coming from market share growth.
In our business, well earlier, there was a question about China, but we are ready to become even stronger in our strong markets, for example, in Australia, in China, our brand business is successful in these markets. And we are looking at the opportunity to grow even further. On the other hand, in Japan, market situation is slightly upward and Yoshida-san asked and the share increase is something we would like to pursue.
So overall, we will be acquiring market share. That's what we have to achieve. That is our mindset.
So raw material cost is expected to increase, if I remember correctly, but it is expected to be flat for margin. So you are not going to acquire market share by decreasing the price?
Well, I'd like you to focus on the total profit because RMCC ratio for fiscal year '23 has come down significantly and the fiscal year '24, it is not necessarily expected to go down further. The RMCC ratio may decline in some regions. But our focus is not on those areas, but this is a chance to use the money for promotion and that will be indicated in the SG&A and price decrease may happen in some areas.
China is a dynamic market. In the premium market, we'd like to maintain and in the economy market, we may decrease the price and the mix may change with more shifting to the economy market. And we are expecting a decline in RMCC ratio in China, but that will be allocated to promotions so that we can achieve better margin. It is risky to do generalization because there are different colors between regions. But I think everyone is thriving so that we can achieve the margin targets.
Well, I think I asked my question in a wrong way. Well, I understand that there is intense competition in China. But I don't see any intensive competition in other markets. In this where you have strong clients? Have you been selling well? Or do you need to decrease price?
For example, in Australia, we have 50% market share. So this is where we would consider a price hike and volume is in a tough situation. So we need to pursue growth with price hike. The share is expected to grow here. And this is possible because we have the premium brand.
On the other hand, in Malaysia, Indonesia. In Indonesia, this is an economy type of market economy products sell well. So this is something we have to capture of opportunities. So we will not focus only on premium products. But when we look at the market share, there is a very strong competitor, and we've been an intensive competition. So we have to focus on both premium and economies. That would be our strategy.
So it really depends on the region?
Well, we are going to aim to be profitable overall, but how we do that will really depends on to the region.
Next, we will take questions from the English channel. [Operator Instructions] We do not see questions from the English channel. So we will take questions from the Japanese channel again. [Operator Instructions]
CLSA Securities [ Tilson ]
[indiscernible] from CLSA Securities. Thank you for appointing me again. Earlier, I asked you on M&A. For the past few years, your construction paint has made progress in M&A going forward. In terms of scale, well the M&A be midsize and can -- will be mainly construction. The industrial paint or marine. There are many good players, high-quality players, so construction, industrial and automotive paint. What is your view on the M&A in this landscape?
So M&A. I cannot talk much about M&A to begin with, but on that basis. It turns out that from -- starting from Dulux in 2019, [indiscernible] and Indonesia, 80% is construction and 20% industrial and Cromology in Europe and [ MTT ], this is the peripheral adjacencies. So including adjacencies, it's not that we are selective on the areas it's the evaluation and the contribution to EPS. So we consider those 2 factors.
Generally, maybe construction area has higher EPS or higher profit. But on the industrial side, if we can buy good profitability with good valuation, then that is a possibility. So we think comprehensively. M&A is -- there's no one single answer. As we said, we want to contribute to MSV, risk return balance need to be good, a good company for a reasonable price and increased EPS as a result of that. So including the size, we have no limitation. We are open-minded in pursuing our M&A going forward.
So maybe this is not a direct answer to your question, but that is our stance. So that I can say for sure.
And your funding, no risk -- barely no risk of new share issuance? So bank borrowing, financing from banks is going to be the mainstream main part -- portion?
Of course, the priority is debt. But I do not rule out the possibility of equity at all. With equity, if it contributes to EPS. And as a result, it leads to a healthier balance sheet, then equity is, of course, a possibility and that remains unchanged for a long time. But we do not have to issue shares if we don't have to. So debt has higher priority. In Corporate Finance, of course, debt is a priority.
And the funding environment, debt funding environment is favorable now. So we are open-minded and equity is a possibility in some circumstances. But right now, of course, we won't do equity financing right now, if there is no M&A going on. And that remains unchanged.
And one last question. Of all the companies you've acquired cash flow, good cash flow and good financial results. And so very little impairment risks, right? Am I correct?
Inherent risk is always existent. But at this current point, we do not think there is anything we need to impair because there's goodwill. So of course, we conduct impairment tests regularly. But when interest rate rises, WACC goes up. And so present value will be negative. As the interest rate rises, if the business plan improves, then it will offset each other. So the worst cases speculation, interest rate goes up, but the financial results do not go up. Then the impairment risk rises, this is a fixed book information, but in the year ending December '23, there were no companies we had [ stint ] here. We're not fully done with our audit, but this is where we are.
Next question is from Goldman Sachs Securities, Ikeda-san, please go ahead.
This is Ikeda from Goldman Sachs. So I joined the call later in the hour. But in the Q4, the OP margin in China is 8%, excluding onetime factors. And I think it was 9.1% last year in the Q4. And the profit margin seems low considering the fact that there were some negative factors last year. And other companies are seeing their decrease in price. So was there any impact? And in [ TSC ] and TUB in China, can you give us some image of how they will grow this year?
And in terms of profit margin, low 10% level. Is that going to be a fair level to assume for this first half?
So I think Okazaki-san asked the same question, but on Page 6. Well, let me address your second question first. TSC 15%, TUB 0% to 5%. So it's a 12.5% growth rate overall, it is still largely flat. In the fourth quarter, as we said, compared to our expectations in TUC, we had a weaker growth than we had expected. But still, we have a positive 8% growth. On the other hand, TUB, we expected a more negative trend, but residential developer opportunities in the public buildings, these contributed positively with increased volume. So it's minus 1%, but it was steady.
The mix is expected to deteriorate, however, and this will lead to deterioration in margin. But in Q3 and Q4, I hope you can aggregate those two. So even before provision, we had good numbers for Q3. And we have control of advertising and promotion expenses, but in Q3 and Q4 overall profit is increasing on a year-on-year basis. We will be promoting CCM installation and promotion and advertisement. These measures were taken in the fourth quarter, looking at 2024, mainly in TUC growth strategy will continue to be in place with good traction, and we are looking at a good delivery.
In Q4, overall we were able to surpass the guidance. We were a little short of the revenue target, but we were able to hit the profit target. So our eyes are already focusing on 2024, and there is no significant change in the trend in this Q1.
Regarding with the price. Well, standard items. I think you are decreasing the price. So can I assume that you are changing the pricing from a strategic point of view in TUC?
Yes, we are maintaining the price for premium products. And it is a fact that trading down is happening. So in the economy zone, we're trying to take market share with a decreased price. So we are expecting 8% growth. But in terms of price mix is lower than that. In terms of volume, it will be higher than that. And of course, we are decreasing price for some products, but Tier 3 to 6 is expected to increase. That would lead to deterioration of the mix.
So I can't generalize this, but it doesn't mean that we are decreasing the price to go into the [ red ocean ]. But we are still being profitable in the TUC business. We will continue our current strategy to pursue growth.
I see. And the 15% TUC growth is expected for this year, which is quite high. Has there been any improvement of a consumer's consumption line?
Well, I haven't heard any of such situation. But if you view better for this year compared to last year then the -- in Tier 3 you have been able to acquire market share.
But is there any difference from the [ Tier 0 City ] in terms of the economic environment? I would appreciate any update.
Well, to be honest, the economic situation is not necessarily good. I don't have any good news. But at the same time, [indiscernible] came, I mentioned this in the small meeting last year. But in terms of competition, especially with small solid peers, they have been choosing to withdraw from this market. In this Q1, foreign affiliated companies decided to withdraw from the market and the local players. But if they are struggling, we decided to include them in our ecosystem as OEM.
So we have been able to take market share from our competitors. At the same time, CCM installation has been promoted strongly. In China, the installation base of CCM is quite strong in China as of today. That is something only we can accomplish. As a market, we are in a tough situation, but we've been able to take a sufficient market share. That is our impression. But at the end of the day, China is a dynamic market.
So you need to look at the results. We would always aspire to be better. And there may be fluctuations in the Q4, 15% to 20% growth, if that is to be achieved. We need to grow by 30% in the Q4, but we are projecting 8%, but it's 13% on a full year basis. So there may be such variances but they will be acceptable. So we have good visibility to growth with margin growth.
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It is time, so we will close the Q&A session. Thank you. And Wakatsuki-san, to conclude the closing remarks.
Thank you. Time is come. Thank you very much for your attendance. As we always say, assembler model is our goal. We're seeing strong growth in each region. We want to deliver strong growth in all regions. I hope you can have expectations to us. The economic situation is not optimistic. It does not warrant optimism, but we have the scale and brand. And we think this will show in numbers this year. We want to share good results with you later. Thank you very much.
With that, we will close Nippon Paint Holdings FY 2023 Q4 financial results telephone conference. Thank you very much for taking time out of your busy schedule to attend today. Please disconnect yourself.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]