Lower the target price to 11.0 yuan to maintain "increased holdings"
Cement prices have continued to weaken recently. as of June 17, the national average cement price was 448 yuan / ton, which was 60 yuan / ton lower than that at the end of March. Jiangxi cement price, where evergreen is located, dropped 60 yuan / ton to 430 yuan / ton compared with the end of March. We lowered our forecast for net return to home in 22-23-24 by 19%, 11%, to 1.45%, 14.10 billion yuan, reflecting the severe demand situation facing the cement industry in the short term and the pressure on the cost side caused by high coal prices. Lower the target price to 11.0 yuan (previous value: 13.6 yuan), based on 7x2022PE, in line with the company's historical average since 2015. In the medium to long term, we believe that the supply-side pattern of the cement industry is expected to remain robust, and in the short term, we expect 4Q22 demand to stabilize and rebound, supporting the repair of prices and profits. Maintain the "overweight" rating. In 22-23-24, the annual EPS is predicted to be 1.57max 1.76max 1.77 yuan.
Wait for the rebalance of supply and demand in the industry
We believe that the decline in cement prices is mainly due to the unprecedented challenges faced by cement demand in 1H22. The real estate market has been in the doldrums since the 2H21, and repeated outbreaks in many places this year have repeatedly led to stricter Omicron controls, putting pressure on cement prices even in the traditional peak season. However, we believe that the most difficult time for the industry is coming to an end, and the drivers of demand-side stabilization are increasing: 1) the gradual relaxation of control measures under the gradual control of the epidemic; 2) the gradual relaxation of real estate policies in many places; and 3) in the context of the strengthening of the government's stable growth policy, infrastructure investment is expected to accelerate further. We expect 4Q22 to be seasonally stronger and superimposed supply-side readjustment as demand stabilizes, which will help improve the industry's supply and demand structure and support profit margin recovery.
Infrastructure investment in the 14th five-year Plan helps growth; actively promoting cost reduction and efficiency Jiangxi Province put forward a total investment of 600 billion yuan in comprehensive transportation planning and construction in the 14th five-year Plan, an increase of 34 percent over the 13th five-year Plan period. In the implementation plan of the great war of Jiangxi Province Project in 2021, it is clearly pointed out that major infrastructure projects and new infrastructure projects in 2021-2023 will strive to complete more than 200 billion yuan and 50 billion yuan per year, respectively, and the actual infrastructure investment in 2020-2021 is about 130 billion yuan. We expect that infrastructure investment will continue to develop in the future, while evergreen, as a regional leading enterprise, is expected to enjoy the benefits of increased regional infrastructure investment. In the face of the cost-side pressure brought by high coal prices, the company is also actively dealing with the cost-side pressure caused by rising coal and electricity prices by expanding coal procurement channels, peak-valley off-peak production, and improving the efficiency of waste heat power generation.
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.
