Core profit growth is strong; demand faces challenges in the first half of the year
Evergreen announced its 2021 results on April 15: 21-year net profit rose 7.6% year-on-year to 1.59 billion yuan, lower than we expected (1.67 billion yuan). If the impact of changes in fair value is deducted, the non-net profit deducted for 21 years is 1.69 billion yuan, an increase of 20.7% over the same period last year. 2H21's net profit fell 4.4 per cent year-on-year to 770 million yuan, but after deducting the impact of changes in fair value, the net profit was 860 million yuan, or + 21 per cent year-on-year, a further growth rate compared with 1H21 (+ 5.8 per cent). We reduced the 23-year net profit by 6% to 1.55 billion yuan, reflecting the severe demand situation faced by the cement industry in the short term and the pressure on the cost side caused by high coal prices. Lower the target price to 13.6 yuan (previous value: 14.50 yuan), based on 7x2022PE, in line with the company's historical average since 2015. In the long run, we believe that the improvement of the supply side of the cement industry will help cement companies to better cope with the challenges brought by the demand side and support cement prices. Downgrade to "overweight". In 22-23-24, the annual EPS is predicted to be 1.94 pound 1.98 pound 1.99 yuan.
Steady growth of cement business; outstanding performance of concrete business
In the past 21 years, the company's cement clinker sales have increased steadily (year-on-year + 1%), and the average sales price has increased significantly by 11.3% to 302 yuan / ton, but the gross profit per ton has only increased by 3 yuan / ton compared with the same period last year. Mainly affected by the rise in coal and energy prices (ton cost + 28 yuan / ton). In 21 years, the cement business segment achieved operating revenue of 860 million (year-on-year + 12.3%), gross profit increased 4% year-on-year to 2.91 billion, and gross profit margin fell 2.8ppt.
Sales of the commercial concrete sector rose 10.3% year-on-year to 6.263 million tons in 2021, while gross profit per ton rose further by 17 yuan / ton to 129 yuan / ton. The revenue of the concrete sector reached 2.87 billion yuan, and the gross profit margin increased by 4ppt to 28.2% compared with the same period last year. In 21 years, the rate of sales, R & D and management expenses increased slightly compared with the same period last year (0.1ppt).
The demand for 1H22 is facing challenges; many favorable factors on the supply side are expected to support prices. We believe that the demand of the cement industry will face severe challenges in the first half of this year. On the one hand, the real estate market remains depressed under the combined effect of the liquidity difficulties of real estate enterprises and the decline in investment willingness, on the other hand, infrastructure investment is repeatedly dragged down by the epidemic and the supporting funds are delayed, so it is difficult to support demand in the near future. However, on the supply side, we see that the implementation of off-peak production in the industry is more in place, and the consensus of the industry to stabilize the market is further strengthened in the face of weaker demand. Therefore, we expect that the improvement of many factors on the supply side will help stabilize cement prices and support tons of gross margin. At the same time, by expanding coal procurement channels, peak-valley off-peak production, and improving the efficiency of waste heat power generation (currently meeting 50% of electricity demand), the company is expected to better cope with the cost-side pressure caused by rising coal and electricity prices.
Risk tips: 1) the degree of tightening of real estate-related policies is stricter than expected; 2) the implementation of industry competition and cooperation is not as expected.