3Q21 performance is lower than we expected.
The company announced 1~3Q21 results: revenue 5.82 billion yuan, year-on-year-3.2%; return to the mother net profit of 950 million yuan,-35.2% year-on-year. Of this total, 3Q21's revenue was 2.52 billion yuan,-4.0% compared with the same period last year, and its net profit was 350 million yuan,-50.7% compared with the same period last year. The company's 3Q21 performance is lower than we expected, mainly due to tons of gross margin lower than we expected. Comments:
1) cement prices in 3Q21 region declined compared with the same period last year, and sales remained basically stable. According to the cement price data we track, the average cement price of 3Q21 in Gansu and Qinghai is 25 yuan / ton (including tax), which is about 5% lower than that of the same period last year. Considering that the price drop is close to the company's 3Q revenue decline, we expect the company's 3Q21 cement clinker sales to remain basically stable compared with the same period last year. 2) the pressure of coal price is significant, the cost side is rising obviously, and the gross profit margin is falling sharply. Affected by the significant upward impact of coal prices, there is obvious pressure on the cost side of the company, with 3Q21's gross profit margin from-10ppt to 25.5% month-on-month. 3) the expense rate is well controlled. The company's 3Q21 expense rate of 6.4%, month-on-month narrowed 0.5ppt, excluding the impact of freight is also basically the same as the same period last year.
Development trend
The rising trend of cement prices in Gansu and Qinghai is good, which is expected to lay a higher cement price foundation. In late September, cement prices in Gansu and Qinghai began to rise many times. As of October 22, Lanzhou and Xining have increased by 150,140 yuan per ton (including tax). We believe that this round of cement price increase is expected to raise the cement price center of Gansu and Qinghai region and lay a higher price foundation for the coming year; in addition, we believe that Gansu and Qinghai region, as the gateway to the west, there are still relatively rich infrastructure plans in the region during the 14th five-year Plan period, and demand in Gansu and Qinghai region is expected to remain stable in the medium term. If the regional cement price remains high and the demand remains solid, the company's medium-term profits are expected to be repaired.
The signing of a collaborative solid waste disposal project with an annual capacity of 150000 tons is expected to help the company improve its energy efficiency. In early October, Yongdeng Qilian Mountain cement kiln coordinated disposal of solid waste project was officially signed, with a total annual comprehensive treatment capacity of 150000 tons, the project is scheduled to be completed and put into production in 2023. Recently, the National Development and Reform Commission and other departments issued the Action Plan for strict Energy efficiency constraints in key Metallurgical and Building Materials Industries to promote Energy Saving and carbon reduction (2021-2025). We believe that the project is closely linked with the trend of energy reduction and carbon reduction in the cement industry and is expected to help companies improve energy efficiency and become more competitive in the medium and long term.
Profit forecast and valuation
Due to the large upward range of coal prices, we raised the cost assumption of 2021 EPS 22e, so we lowered the cost assumption by 21.7% to 1.49 yuan / 1.73 yuan. The current share price corresponds to 2021/22e6.7x/5.7x Pamp E. We maintain the industry rating to outperform. Based on the cautious expectation of the demand situation in Gansu and Qinghai, we lowered our target price by 19% to 13.40 yuan, corresponding to 2021 9.0x/7.7x 22e Pmax E, implying 34.8% upside space.
Risk
Demand in Gansu and Qinghai was lower than expected, and cement prices fell faster than expected.