The company's net profit attributable to the mother in '22 was 4,542 billion yuan, a decrease of 63.80% from the previous year. The company published its annual report for '22. It achieved revenue/net profit of 1325.81/4542 billion yuan, a year-on-year decrease of 22.03%/63.80%, and achieved net profit of 2,755 billion yuan after deducting non-return of the mother, a year-on-year decrease of 45.34%. The non-recurring profit and loss was mainly revenue generated from disposal of fixed assets, intangible asset disposal, receivables recovered in '22, and government subsidy income such as tax refunds received. Among them, Q4 achieved revenue/net profit of 339.44/489 million yuan in a single quarter, a year-on-year decrease of 34.1% %/ 81.65%, after deducting net profit of non-return to the mother - 271 million yuan.

The volume and price of the main cement industry have plummeted, and gross profit per ton has declined sharply

The company achieved revenue of 89.184 billion yuan in cement and clinker in '22, a year-on-year decrease of 22%. In terms of sales, cement/clinker in '22 were 23893/3.264 million tons respectively, down 15.2%/8.7% year-on-year. The overall average price of a ton fell 30 yuan year on year to 328 yuan/ton. Affected by the rise in coal prices, the ton cost rose 24 yuan year on year to 281 yuan/ton, ultimately achieving gross profit of 47 yuan per ton, a year-on-year decrease of 55 yuan/ton. We believe that the supply side of the cement industry may continue to shrink in '23. If the demand side stabilizes, the price center is still expected to rise in '23. At the same time, the company will also control costs through centralized procurement and expansion of direct supply channels, etc., and gross profit per ton is expected to rise.

The aggregate business is expected to maintain relatively rapid growth. The future will be an important profit growth point for the company. The company's concrete/aggregate business revenue in '23 was 343/55 billion yuan, -29%/+31% year on year, with sales volume of 79.33 million square meters/115 million tons respectively, -24%/+34% year on year, unit price 433/47.8 yuan, year-on-year: 31/-1.1 yuan, unit gross profit 60/23 yuan, year-on-year: -8/+0.1 yuan. The gross profit of the company's concrete and aggregate business reached 35% of the total gross profit in '23, 13.4 pct compared to 13.4 pct. Currently, the company's concrete/aggregate production capacity has reached 400 million square meters/230 million tons respectively. The company announced a convertible bond issuance plan in October 22, and plans to raise no more than 10 billion yuan for aggregate and other project construction. The non-cement business, especially aggregates, may be an important growth pole for the company in the future.

The dividend ratio remains high, and I am optimistic that ROE will recover upward in '23

The company's cash dividend for 22 was 2,339 billion yuan, accounting for 51.5% of the net profit of the mother. The company plans to distribute the annual cash dividend for 2022-2024 will not be less than 50% of the net profit of the mother. Currently, ROE is at the bottom of history. We expect that the profit of the cement business will improve in 23 or drive an upward ROE recovery. Considering that the company's net profit forecast for 23 to 24 was lowered to 6.14/7.60 billion yuan (previous value of 110/131 billion yuan), adding a profit forecast for 25 years 8.82 billion yuan. Referring to comparable companies, considering the company's leading position, the company was given 1.2 times PB for 23 years, with a target price of 11.75 yuan to maintain the “buy” rating.

Risk warning: demand for real estate falls short of expectations, low demand for infrastructure, increased price competition, etc.