The 2022 results are in line with market expectations, and the 1Q23 results are in line with our expectations. The company announced 2022 and 1Q23 results: 2022 revenue of 7.135 billion yuan, -14.2% year-on-year, and net profit of 949 million yuan, or -56.4% year-on-year. Among them, 4Q22's revenue was 1,971 million yuan, -24.8% year-on-year, and net profit from the same period was 103 million yuan, or -82.5% year-on-year. The company's 2022 performance was in line with market expectations. The company's 1Q23 revenue was 1,390 million yuan, -6.8% year-on-year, and net profit was 173 million yuan, or -49.4% year-on-year. The company's 1Q23 performance was in line with our expectations.
2022:1) Sales volume declined, narrower than the industry. The company sold 19.33 million tons of cement clinker in 2022, -7% year-on-year, of which 14.87 million tons of cement were sold, -3% year-on-year, a decline narrower than the industry. 2) The average price of tons and gross profit per ton are under pressure. The company's average price per ton of cement clinker in 2022 was 308 yuan without tax, -38 yuan (or -11%). Combined with coal costs, the company's gross profit per ton of cement clinker in 2022 was 89 yuan, or -53 yuan (-38%) year on year. 3) Expense rates have increased. The company's sales/management expenses ratio in 2022 was 1.9%/8.2%, +0.4/+1.7 ppt year on year. 4) The aggregate business is steadily expanding, and gross margin remains high. The company's aggregate sales volume in 2022 was 16.12 million tons, +21% year-on-year. It continued to maintain a steady release volume during the downturn in the industry, and the gross profit margin of aggregate was 78.7%, which continued to be high.
1Q23: Overall demand in January-January was weak. The market began to pick up in March, and volume and prices rose sharply. We estimate that 1Q23's gross profit per ton of cement clinker may have recovered somewhat compared to 4Q22. In 1Q23, the company's comprehensive gross profit margin was 26.3%, -14.8ppt (mainly due to the higher price base in '22), but it has improved 1.8ppt month-on-month.
Development trends
Demand recovery+production and sales volume are expected, and we remain optimistic throughout the year. We believe that since March, the overall demand in the company's core business area has shown a moderate recovery trend. The company's prices and tonnage profit have all been recovering. Combined with the Guangxi Du'an Line, which the company has already put into operation by the end of the 22nd, and the Guizhou Duyun Line, which is expected to be put into operation by 1H23, the company is expected to benefit simultaneously from a recovery in industry sentiment and increased production and sales in 2023, and profits are expected to pick up season by quarter.
The “two wings” business is in steady cultivation and expansion. The company's “two-wing” businesses, such as aggregates and environmental protection, maintained steady growth. In 2022, the company's aggregate sales volume bucked the trend, contributing 24% to gross profit, +9ppt over the previous year.
Revenue from the environmental protection business reached 208 million yuan, an increase of nearly 60% over the previous year. Furthermore, the company's investment application for listing on the Science and Technology Innovation Board will soon be issued. A new round of financing for the Guangzhou Yuexin Project has increased its fair value by nearly 50 million yuan. We believe that the company's “two-wing” business will gradually move towards a harvest period, which is expected to help smooth profits and optimize capital allocation.
Profit forecasting and valuation
As a result of adjusting the tonnage profit assumption, we lowered 2023E's gross profit by 5.4% to 1.54 billion yuan, and introduced 2024E's gross profit of 17.01 billion yuan. The current stock price corresponds to 2023/24E 7.1x/6.4x P/E.
We maintain our outperforming industry rating. Considering that the industry is in the recovery phase, we maintain a target price of 14.0 yuan, corresponding to 2023/24E 8.8x/7.9x P/E, implying 24% upside.
risks
The recovery in demand fell short of expectations, and coal prices rose more than expected.