Guide to this report:
The company announced its report for the third quarter of 2022. Profitability returned to losses throughout the industry in 2015. Profitability is expected to recover in Q4 and maintain the “increase in holdings” rating.
Investment points:
Maintain the “increase in holdings” rating. Q3 achieved revenue of 2,542 million yuan, a year-on-year decrease of 30.99%, and net return profit of 75 million yuan, a year-on-year decline of 75.16%, which was lower than market expectations. Considering the impact of the pandemic on the decline in real estate, the 2022-2024 EPS forecast was lowered to 0.92 (-0.44), 1.15 (-0.49), and 1.45 (-0.38) yuan.
The target price was lowered to 11.50 (-1.62) yuan according to a comparable company's 23-year average of PE of 10 times.
We estimate that the company's Q3 cement clinker self-produced and self-sold sales volume fell by about 3% year-on-year. Compared with H1's -17% decline, the decline was clearly narrower. Considering that the Jiangxi region required all clinker production lines to stop production for 10 days in August at the end of July, the actual sales volume may be higher. We believe that the decline in the company's sales volume in Q3 has narrowed because the company is a leader in Jiangxi, and its overall strategy has shifted to prioritizing market share. However, with the sharp drop in national cement prices at the end of Q2, the company's trade volume shrank rapidly, which is the core reason for the rapid decline in Q3 revenue.
Q3 Margin was marginal, and profitability returned to 2015. We estimate that the average factory price of the company Q3 was about 250 yuan/ton, a drop of nearly 100 yuan/ton, gross profit per ton fell back to 30 yuan/ton, net profit per ton was 5 yuan/ton, only marginal profit, and profitability returned to 2015. However, with Jiangxi ceasing production for 10 days in August, limiting regional production capacity and entering the peak season of gold, nine, and silver, the overall supply and demand conflict has eased somewhat, and profitability is expected to recover in Q4.
Continue to increase the upstream and downstream cement industry chains. The company has many limestone mines in Jiangxi, with an annual output of 9 million tons, providing a stable source of raw materials for cement clinker production. Judging that aggregate business revenue continues to double year-on-year. The industrial layout of downstream commercial concrete mixing plants and aggregates is market-oriented. At the same time, we are actively developing markets and establishing a multi-channel and multi-level marketing network.
Risk warning: The extension of the industrial chain does not meet expectations, and there is a risk that coal prices will rise.
