Western Construction is a leading enterprise of commercial concrete, with business covering 26 provinces. With the implementation of the regional strategy and the landing of cooperation with Anhui Conch Cement, the profitability of the company is expected to rise steadily. Cover for the first time to give a buy rating.
Support the main points of rating
The market scale of ready-mixed concrete is more than one trillion yuan, and the commercial and mixed enterprises with construction background have more advantages: the ready-mixed concrete industry has a wide space and many participants. The combined market share of the top ten commercial concrete enterprises is less than 10%, while the market share of western construction is only 2%. Cement background mixed enterprises and construction background mixed enterprises have strong competitive advantages, but we think that the advantages of construction background mixed enterprises with customer resources are more significant.
Western Construction, the only commercial concrete business operation platform under China Construction Group, has become the second largest commercial concrete enterprise in the country after the completion of the acquisition and reorganization of commercial concrete enterprises under China Construction Group in 2013.
The construction of the western region has ploughed the commercial concrete industry for more than 20 years, covering 26 provinces across the country.
The moat of western construction continues to expand, and the performance scale and profitability are gradually improved: the company's profit margin is slightly lower, but the performance elasticity is remarkable. If the scale of income remains unchanged, the net interest rate of homing increases by 1pct, and the net profit of homing can increase by 31.96%. We believe that the improvement of the company's performance is mainly based on two aspects: 1. The commercial concrete provided by the company to China Construction Group accounts for only about 9.6% of the total concrete needed by China Construction Group, and there is much room for demand growth; the increase in the proportion of high value-added products is also expected to further expand the revenue scale; 2. The profit level is expected to increase with the expansion of revenue. The gross profit margin of the mature region of the company is about 4 percentage points higher than that of the new region. if the revenue scale of the new region increases, the gross profit margin is expected to be closer to the mature region and drive the overall gross profit margin to increase. Anhui Conch Cement becoming a strategic investor will also give the company an advantage in raw material procurement and logistics costs, and help the company continue to expand the eastern market.
Valuation
Considering the vast market space of ready-mixed concrete and the engineering channel advantage of the company, the introduction of Anhui Conch Cement as a war investment will gain cost advantage, we estimate that the company's income from 2022 to 2024 will be 285.9 yuan, 309.3 yuan and 34.96 billion yuan respectively, the net profit of returning home will be 9.6,12.2 and 1.64 billion yuan respectively, and the EPS will be 0.76,0.97,1.30 yuan respectively. Cover for the first time and give a buy rating.
Main risks faced by rating
The landing of infrastructure is not as expected, the effect of business expansion is not as expected, and the effect of strategic cooperation is not as expected.