Key points of investment
Incident: The company disclosed the 2022 annual report and the first quarter report of 2023. The total revenue achieved in 2022 was 7.13 billion yuan, a decrease of 14.2% over the previous year, and the net profit of the mother was 950 million yuan, a decrease of 56.4% over the previous year.
202Q4/2023Q1 achieved operating income of 19.7/1.39 billion yuan respectively, compared to -24.9%/-7.0% year on year, and achieved net profit of 100.170 million yuan, compared to -82.5%/-49.4% year on year, which is basically in line with our expectations. The company pays a cash dividend of 3.5 yuan for every 10 shares to all shareholders.
The bottom of the cement industry is picking up, and high-margin aggregates and environmental protection businesses are growing rapidly. (1) In 2022, cement and clinker achieved revenue of 5.96 billion yuan, -17.3% year on year, sales volume of 19.33 million tons, -7.1% year on year. It is estimated that the average price per ton fell by 38.1 yuan year-on-year; 22Q4/23Q1 revenue was -32.1%/-4.5% year-on-year respectively. The narrowing of the decline was mainly due to the industry's suspension of kilns during the Spring Festival and the rapid resumption of work downstream. The volume and price of the company's key market in East China rose sharply. (2) In 2022, the concrete/aggregate business achieved revenue of 21/72 billion yuan, +5.0%/+30.0% year on year, achieving sales volume of 510,000 square meters/16.12 million tons, -8.2%/+20.7% year on year. The estimated average price per single/ton was 403/45 yuan; the environmental protection business achieved revenue of 210 million yuan, +80.0% year on year. The non-cement industry performed brilliantly, hedging the downward pressure on the cement industry.
The rise in coal costs led to a decline in gross margin in the cement business, while the gross profit level of the aggregate and environmental protection business remained high, and the net interest rate bottomed out in 22Q4. (1) The gross margin of cement and clinker in 2022 was 28.8%, a year-on-year decline of 12.3 pct. It is estimated that gross profit per ton was -54 yuan year-on-year; the gross margin of concrete/aggregate/environmental protection business was 12.7%/78.7%/50.4%, respectively, and -11.0/-1.2/-2.3pct over the previous year. (2) The cost rate for the 2022 period was 13.2%, and the cost per ton of cement was 48.9 yuan, respectively +2.3 pct/+5.2 yuan respectively; the cost rate for the 23Q1 period was 14.0%, +0.9 pct over the previous year; (3) the company achieved a net interest rate of 13.4% in 2022, with a net profit of 49.6 yuan per ton, respectively -13.7 pct/-58.7 yuan respectively; the net interest rate of 23Q1 was 11.4%, up 7.0 pct from 22Q4, which is expected mainly due to the recovery of the cement boom.
Operating cash flow has declined sharply, and capital expenditure has not abated. (1) The company paid 1.11 billion yuan in cash for the purchase and construction of fixed assets, intangible assets and other long-term assets in 2022, which is basically the same as the previous year. The company's capital expenditure was unabated, and projects such as the Inner Mongolia Aggregate Project progressed in an orderly manner; (2) the balance ratio at the end of 2022 was 43.3%, +3.1pct year on year, and the 23Q1 balance ratio continued to rise 3.4 pct to 46.8% month-on-month; (3) the net cash flow from operating activities in 2022 was 1.02 billion yuan, -64.1% year on year.
The implementation of physical infrastructure demand has boosted industry sentiment, and the company's profits are expected to improve step by step. Demand for cement is expected to continue to pick up as infrastructure continues to grow. The company's core market, the Yangtze River Delta region, has a high capacity utilization rate, and price elasticity is expected to be better than that of the whole country, driving a profit rebound in the cement industry. The first bright spots in the two-wing business are expected to reduce profit volatility and open up room for long-term growth.
Profit forecasts and investment ratings: The balance between supply and demand in the industry has been reestablished, the bottom of the boom has rebounded, profits from the company's main cement and clinker business are expected to improve steadily, and the two-wing business will contribute new growth points. Based on the slow recovery of real estate investment, coal prices remained high. We lowered our net profit from 2023-2025 to 11.4/14.2/1.87 billion yuan (the previous forecast value for 2023-2024 was 1,68/1.93 billion yuan). The closing price on April 21 corresponds to a price-earnings ratio of 9.4/7.6/5.7 times, maintaining the “increase in holdings” rating.
Risk warning: The risk that the decline in real estate exceeds expectations, the recovery of physical infrastructure demand falls short of expectations, and the industry competition situation worsens.