The company released its mid-2021 report that its revenue in the first half of the year was 3.3 billion, down 2.7%, and the net profit returned to its mother was 600 million, with a decrease of 17.9% TEPS 0.77 yuan per share. In the first half of the year, the infrastructure slowed down, steel prices rose sharply, the progress of downstream projects slowed, and the volume and price of cement fell. It is optimistic that the issuance of special bonds will be accelerated in the second half of the year, infrastructure construction will support the bottom, and cement demand will pick

Support the main points of rating

2021Q2's profit declined, and its gross profit margin dropped significantly compared with the same period last year: 2021Q2's revenue was 2.52 billion yuan, down 10.4%, and its mother's net profit was 550 million yuan, down 23.0%. The company's gross profit margin is under pressure. 2021Q2's comprehensive gross profit margin is 35.7%, down 8.5pct from the same period last year. Excluding the change in accounting standards for freight costs, it is still down 6.0pct.

Rising costs, falling unit prices and declining profits: we estimate that the average price of Q2 cement is 325 yuan, with a decrease of 40 yuan; the cost per ton is 205 yuan, up 50 yuan from the previous month; and the gross profit per ton is about 120 yuan. Cement sales in the first half of the year are expected to be 9.96 million tons, with a unit price of 327 yuan, a cost of 195 yuan per ton and a gross profit of 132 yuan per ton

Many factors affect the regional cement market, and rising coal prices bring cost pressure: the progress of infrastructure projects in the region has obviously slowed down, and there are signs of shortage of funds for key projects; the sharp rise in steel prices has made some projects take the initiative to slow down the construction progress; local supporting funds are not in place; foreign cement hits the market. The rise in coal prices also brings great pressure on enterprise cost control.

It is optimistic that the economy will improve in the second half of the year: the economy is tight in the first half of the year, infrastructure investment is slow, the pace of special bond issuance is slow, and domestic demand is worryingly weak in July. The Politburo meeting at the end of July sent a signal of policy correction. We expect that macro policies will tend to be loose in the future, the importance of infrastructure support will be raised to an important position, and the demand for cement will increase accordingly.

Valuation

Considering the rise in coal prices in the second quarter and the decline in cement prices, we lowered our profit forecast. It is estimated that the income of the company from 2021 to 2023 is 80.3,83.1 and 8.58 billion yuan, the net profit of returning to the mother is 14.8,16.3 and 1.68 billion yuan respectively, and the EPS is 1.91,2.10,2.16 yuan respectively. Maintain the company's buy rating.

Major risks to rating

The promotion of infrastructure and special debt is not as expected, the price stability of commodities is not as expected, and the coordinated promotion in the region is weak.