Performance review
The 2022 results are in line with our expectations
The company announced its 2022 results: revenue of 34.54 billion yuan, -4.9% year on year, net profit of 1.36 billion yuan to the mother, or -51.7% year on year. Among them, 4Q22's revenue was 7.19 billion yuan, -29% year on year, and net profit of the mother was -277 million yuan. The company's 2022 results are in line with our expectations.
1) Sales volume declined, and the decline was basically consistent with the industry. The company sold 86.88 million tons of cement clinker in 2022, or -12.9% year on year; at the industry level, the decline in cement production in North China/Northeast China in 2022 was -11.8%/-19.7%, and the company's sales decline was basically consistent with the industry. 2) The average price of a ton increased year over year. The company's average cement clinker tonne price in 2022 was 340 yuan, +20 yuan (or +6%) compared to the previous year, mainly due to the fact that 1H22 cement prices in North China were still relatively high year on year. 3) Tons of gross profit and tonnes of net profit declined under pressure. The company's gross profit of cement clinker tons in 2022 was 68 yuan, compared to -17 yuan (or -20.3%); net profit of full-caliber cement clinker tons returned to the mother was 15.6 yuan, compared to -12.6 yuan over the previous year. 4) The fee rate has increased. The company's sales/management/finance expense ratio in 2022 was -0.1/+0.7/+0.1ppt. 5) The balance ratio has increased. At the end of 2022, the company's balance ratio was 47.4%, a year-on-year increase of +3.4ppt.
Company business plan for 2023: The company plans to achieve annual revenue of 36 billion yuan.
Development trends
Demand in North China is gradually starting, and industry sentiment is expected to improve throughout the year. The northern regional market is in the process of gradually starting after the Spring Festival. As of March 24, the Beijing-Tianjin-Hebei cement delivery rate had reached 70%, the 1Q23 average delivery rate was 33%, compared to +13ppt, and demand was recovering steadily. Benefiting from the well-implemented winter peak production, regional cement/clinker stocks were also in a suitable position. We believe that this year, as the decline in real estate demand narrows and the number of infrastructure projects started increases, demand for cement is expected to pick up marginally, the supply and demand side of the industry is expected to improve. Combined with coal prices, there may be a moderate decline in coal prices. We expect the company to achieve quarterly improvements in profits, and annual performance is expected to recover.
The regional integration pattern is being optimized. The company announced the establishment of a joint venture with Tianshan Co., Ltd. in Liaoning, pledging an investment of 900 million yuan, accounting for 50% of the shares, and the company merged with the company. We believe that the joint venture is expected to play the leading role of the two in the Northeast market, help promote the integration of the Northeast region and the establishment of an industry ecosystem. It is expected to optimize the market pattern in the Northeast region in the medium to long term, and is also expected to greatly benefit the company's operating efficiency in the Northeast region.
Profit forecasting and valuation
Considering that the supply and demand side of the industry is expected to pick up, we raised our sales volume and ton profit assumptions. We raised the 2023E net profit forecast of 19.9% to 2.00 billion yuan, and introduced the 2024E net profit forecast of 2.30 billion yuan. The current stock price corresponds to 2023/24E 11.5x/9.9x P/E. We continue to outperform industry ratings. Considering that the company's first-quarter results may still be clearly under pressure, we keep our target price unchanged at 9.9 yuan, corresponding to 2023/24E 13.2x/11.4x P/E, implying 15% upward space.
risks
The recovery in demand fell short of expectations, and costs rose more than expected.