Key points of investment
The company announced its 19-year results: achieved revenue of 7.247 billion yuan, an increase of 22.6% over the previous year; gross profit of 2,441 billion yuan, an increase of 22.9% over the previous year; profit attributable to the company's owners was 1,801 billion yuan, an increase of 55.4% over the previous year; the basic profit per share was 33.1 points, with a planned dividend of 9.9 points for the whole year, and the dividend rate increased to 30% (12% in 2018).
Our review is as follows:
The volume and price of cement rose sharply, and revenue increased 12% year over year. Cement & clinker sold 19.3 million tons, an increase of 6% over the previous year, and the southern Shaanxi market contributed the main increase. The price of a ton was 333 yuan, an increase of 19 yuan/+6.1% over the previous year. The cost of a ton increased by 9 yuan to 213 yuan/ton over the same period last year. Among them, the cost of raw materials for a ton of cement increased by 8 yuan, the cost of using coal increased by 3.2 yuan, and employee salaries increased by 2.4 yuan. The gross profit of one ton increased by 10 yuan to 120 yuan/ton.
The industrial chain was extended, and aggregate/commercial mixing entered rapid development. In 2019, aggregate revenue increased 220% year on year, mixed business revenue increased 300% year on year. Aggregate sales volume was 1.98 million tons, gross profit margin was 50%, mixed commercial sales were 900,000 tons, and gross profit margin was 20%. The company is committed to industrial restructuring. In the long run, aggregate/commercial mixing is expected to reach 40% of total revenue. Currently, this ratio is 8%.
Expenses were properly controlled, and the tonne fee dropped slightly from 1.57 yuan to 32.48 yuan/ton over the same period last year. Tonne sales expenses are 3 yuan (flat), ton management expenses are 19.8 yuan (+1.3 yuan), and ton financial expenses are 9.7 yuan (-2.9 yuan).
The scale of financial leases is controlled. Guangxin International, a wholly-owned subsidiary, recorded loans receivable of 1.78 billion yuan, a decrease from the size of the interim report. Interest income was 213 million, the return on capital was 12%, and loan impairment losses were manageable. The term structure has been adjusted, and the share of short-term loans has increased dramatically.
Entered the African cement market. In September '19, the company built a line in the Mozambican capital. In January '20, the company announced its intention to acquire a Namibian cement company in Africa. The financial leasing business previously took up a lot of the company's cash flow. When the scale of financial leasing was controlled, the company committed to going overseas to find business opportunities.
Our point of view:
Major newly constructed projects in Shaanxi Province in 2020 include 2 high-speed rail lines and 3 subway lines, which can sustain a moderate increase in cement demand. We expect net profit attributable to the mother to be 1,935 million, 20.64 and 2,068 billion yuan respectively in 2020-2022. The increase in profit is due to the rapid development of aggregate and commercial mixing businesses. The current PE valuation corresponds to 3.3 times in 19, the PB valuation 0.67 times, and the dividend rate is 9%. Controlling the scale of financial leasing and increasing the payout ratio is the catalyst for valuation repair. Maintain the “prudent increase” rating and the target price of HK$1.73.
Risk warning: economic deterioration, collapse of industry collaboration, fluctuations in raw material prices, credit risk, equity disputes