The company released its 2022 annual report on March 28, achieving revenue of 34.544 billion yuan for the whole year, a decrease of 4.94%; Guimu's net profit was 1,358 million yuan, a decrease of 51.69%. We are optimistic that the competitive pattern of the northern cement industry will accelerate and optimize in 2023. We expect the company's performance to improve and maintain the company's buying rating.
Key points to support ratings
Price increases and falls in 2022, from high to low. The company achieved revenue of 34.544 billion yuan for the full year of 2022, a decrease of 4.94%; the net profit of the mother was 1,358 million yuan, a decrease of 51.69%. According to the company's annual report, the company achieved sales of 86.88 million tons of cement and clinker in 2022, a decrease of 12.88%. We estimate that the company's annual average price of cement and clinker is around 339.90 yuan/ton; according to the annual report, the company's tonnage cost is 272.08 yuan/ton, up 36.92 yuan/ton year on year. We estimate that gross profit per ton is 67.82 yuan/ton, down 17.32 yuan/ton; net profit per ton is 7.25 yuan/ton, down 19.03 yuan/ton; gross profit margin for cement and clinker is 19.95%, down 6.63 pct from the previous year. When price resilience was relatively high in North China in the first half of the year, the company's average sales price of boiled water throughout the year was about 19.59 yuan/ton higher than in 2021, and prices fell faster in the second half of the year. Moreover, the increase in tonne cost was about 36.92 yuan/ton, greater than the increase in the average price, and unit profit declined. Combined with the decline in demand, sales also declined, and the company as a whole was under significant pressure in 2022.
Cooperation with Xintianshan to integrate the Northeast market may usher in an improvement in the industry pattern. At the end of 2022, the company announced a joint venture with Xintianshan to establish Liaoning Jinzhong Cement Group Co., Ltd., which mainly integrates the Northeast cement market. According to China Cement Network, the total market share of clinker production capacity between the company and Xintianshan in the Northeast region is close to 30%. It is expected that a strong partnership will improve the Northeast cement pattern to a certain extent and enhance the company's pricing voice in the Northeast region.
2023 may be a critical period for speeding up the clean-up of the northern region. We expect that demand in the cement industry will not increase significantly in 2023 compared to 2022. For North China and Northeast China, where overcapacity is severe, it may be a critical period for optimizing the production capacity pattern. 1) Profitability deteriorated and exited at an accelerated pace. Currently, demand in North China is weak and costs are high. According to Zhuochuang information, many manufacturers are near the break-even point, and declining profits may accelerate the exit of small and medium-sized enterprises and optimize the industry pattern. 2) “Dual carbon” guides the elimination of backward production capacity. In November 2022, the Ministry of Industry and Information Technology and 4 other departments jointly issued the “Implementation Plan for Carbon Peak in the Building Materials Industry”. It is required that the overall energy consumption level of cement clinker per unit product be reduced by at least 3% during the “14th Five-Year Plan” period. We believe that tighter policies that control energy consumption will accelerate the forced exit of backward production lines. In particular, the withdrawal of small to medium production lines of 2,500 t/d and below may be further accelerated, and the industry's supply and demand pattern is expected to improve.
valuations
Based on the company's 2023 operating goals, we adjusted the company's profit forecast. The company is expected to achieve revenue of 359.51, 370.26, and 38.179 billion yuan in 2023-2025; net profit of 20.18, 2,539, and 3.297 billion yuan; earnings per share of 0.76, 0.96, and 1.24 yuan respectively, corresponding price-earnings ratios of 11.3, 9.0, and 6.9 times.
The main risks faced by ratings
Coal prices have risen, demand for cement has declined, and the pattern has worsened.