1H22 performance is weak; profit is under short-term pressure
Evergreen announced 1H22 results on August 19: 1H22's homing net profit fell 40.5% to 490 million yuan compared with the same period last year. If the impact of changes in fair value is deducted, the non-net profit in the first half of the year is 380 million yuan, down 42.3% from the same period last year. On a quarterly basis, 2Q22's single-quarter net profit fell 43.7% to 280 million yuan compared with the same period last year; after deducting the impact of changes in fair value, 170 million yuan was deducted from non-net profit, which was-56.5% compared with the same period last year, further expanding the decline compared with 1Q (- 22.3%). We lowered our forecast for annual return net profit for 22-23-24 by 9% to 1.36 billion yuan, reflecting the prospect of persistently depressed cement prices and weak demand since July. Lower the target price to 10.94 yuan (previous value: 11.00 yuan), based on 7xPE, 2022-2023 average EPS, in line with the company's historical average since 2015. We expect cement prices to be marginally repaired with the arrival of the peak season, but the company's profits still face challenges in the short term. Maintain the "overweight" rating.
Profits shrank sharply under weak demand
In the first half of the year, the company's cement clinker sector achieved business income of 2.82 billion yuan, down 18.4% from the same period last year, gross profit fell 39.4% to 870 million yuan, and gross profit margin narrowed 10.7ppt to 30.8% year-on-year. The mixed business sector performed slightly better than the cement sector in the first half, with revenue from-3.3% to 1.21 billion yuan, gross profit down 7.8% to 200 million yuan, and gross profit margin from-0.8ppt to 17%. Excluding the southern evergreen joint venture company, the company realized a net profit of 170 million yuan after tax,-53.9% of the same period last year. We believe that the sharp decline in corporate profits is mainly due to a decline in sales due to weak demand, while a sharp rise in coal and electricity prices during the performance period pushed up cost-side pressure. According to the National Bureau of Statistics, cement production in Jiangxi Province, the core market of evergreen, was 39.2 million tons in the first half of this year, down 17.0% from the same period last year.
Profits continue to be under pressure under the challenging supply and demand situation.
Although the implementation of off-peak production at the supply side this year is better than in previous years, Jiangxi cement Association informed the off-peak production for 10 days in August this year (5 days in August 21), for a total of 70 days in the whole year (55 days in 21 years). However, the improvement in the supply side is not enough to offset the adverse impact of the sharp decline in demand. Since July, cement market prices in Jiangxi Province have continued to decline, with a cumulative decline of about 100 yuan / ton. We expect cement prices to be marginally repaired with the advent of the peak cement demand season, but given the continued downturn in the real estate market, we expect prices to recover sharply. In the face of a challenging business environment, the company is also expanding coal procurement channels, peak-valley off-peak production, and improving the efficiency of waste heat power generation to control costs and offset part of the profit pressure.
Risk tips: 1) the degree of tightening of real estate-related policies is stricter than expected; 2) the coordinated implementation of the industry is not as expected.