Incidents:
The company released a report for the first quarter of 2023. The revenue achieved in Q1 2023 was 5.184 billion yuan, an increase of 4.35% over the previous year; the net profit of the mother was -792 million yuan, compared to -233 million yuan in the same period last year; net profit after deducting non-return to the mother was -829 million yuan, compared to -250 million yuan in the same period last year.
Q1 The volume of cement increased and the price decreased, and the bottom of performance may have been established
In 2023 Q1, cement production in North China was 28.63 million tons, an increase of 24.29% over the previous year; in 2023 Q1, Hebei/Shanxi/Inner Mongolia/Tianjin/Beijing cement shipping rates were 34.1%/31.8%/15.2%/22.3%/21.4%, respectively, up 11.7/7.0/9.0/3.3/4.7pct, respectively. According to the increase in cement production and delivery rate in North China, we expect the company's cement sales volume in 2023Q1 to have a double-digit year-on-year increase, while the company's performance fell short of expectations, and we think the main reason for 2023Q1 is that although cement demand in North China increased significantly year on year, prices continued to decline; according to China cement network data, 2023 Q1, Beijing/Tianjin/Hebei/Shanxi/Mongolia PO 42.5, the average price of bulk cement was 465/408/437/455/458 yuan/ton, down 20.9%/24.3%/respectively from the previous year 15.5%/10.0%/3.5%, down 13.1%/11.2%/7.3%/6.6%/0.4% from 2022 Q4. 2) In terms of cost, the company's cement and clinker tonnes cost in 2022 was 272.1 yuan/ton, an increase of 36.9 (+15.7%) yuan/ton over the previous year; among them, raw materials/fuel and power/depreciation/labor and other unit costs were 82.3/132.7/17.6/39.5 yuan/ton respectively, up 3.8 (+4.9%) /24.1 (+22.2%) /2.9 (+19.4%) /6.1 (+18.4%) yuan/ton respectively. In 2023 Q1, the average price of Qinhuangdao thermal coal (Q>5500) closed positions in Qinhuangdao was 1,134 yuan/ton, down 1.8% from the previous year and 20.1% from 202Q4. However, considering that the company's accounting treatment valued bulk raw materials according to a weighted average price, the 2023 Q1 thermal coal price drop was not fully reflected in the report.
Q2 Regional demand in North China starts, and profits are expected to recover quarterly
Looking at the demand side, since the beginning of March, as temperatures have picked up in the northern region, the resumption of construction projects has led to the restoration of demand for cement. At the beginning of April, construction of the Beijing-Tianjin-Hebei project was blocked due to sandstorms, which disrupted demand for cement to a certain extent, but it was still better than the same period last year. In 2023 Q1, the total planned investment for fixed asset investment and construction projects in Beijing/Tianjin/Hebei/Shanxi/Inner Mongolia increased 4.1%/17.3%/19.6%/6.3%/12.0%, respectively; the amount of real estate development investment completed was +9.80%/-36.50%/-4.50%/+2.40%/+5.60%, respectively. We believe that with the acceleration of construction of major infrastructure projects such as key projects in Xiong'an New Area and the marginal reduction in the real estate sector decline, demand for cement in North China in 2023 will be supported. Starting in Q2 2023, relying on the cement industry's good sense of consensus and self-discipline in the northern region, cement companies in Hebei, central and southern China started off-peak production to absorb inventory, which is expected to drive cement price recovery in North China. At the same time, the marginal decline in thermal coal prices will ease the pressure on the cost side. In terms of expenses, in Q1 2023, the company's cost rate for the period was 22.69%, down 1.28 pct from the previous year; among them, the sales/management/R&D/financial expenses ratio was 2.45%/16.74%/0.49%/3.02%, respectively, compared to -0.13/-0.84/+0.02/-0.32 pct respectively; 2023 is the company's “year of management efficiency improvement”. The company will continue to promote intensive procurement to reduce costs and increase efficiency by researching and controlling the pace of production and reducing management expenses. The cost rate for the subsequent period is expected. Gradual decline.
Teaming up with Tianshan to integrate the cement market in Liaoning and increase the market share in the Northeast region 2022/12/8, the company announced the establishment of a joint venture with Tianshan Co., Ltd. to first integrate the cement assets of the company and China Building Materials in Liaoning to improve the efficiency of the company's operations. In the medium to long term, the company will continue to deepen the integration of the cement market in Liaoning and the Northeast region, improve the industry ecology, and further promote the optimization of the benefits of the cement market in Northeast China. In 2022, the company achieved revenue of 2,077 billion yuan in the Northeast region, accounting for 6.0% of the company's main business revenue. By the end of 2022, the company's cement clinker production capacity in Heilongjiang/Jilin/Liaoning accounted for 16.09%/11.09%/3.63% of the total production capacity of each province, respectively. The company's market share in the Northeast region still has plenty of room to increase.
Profit forecasting and investment advice
The company is the cement leader in North China, and its cement production capacity ranks third in the country. In the short term, as the prosperity of the cement market in North China gradually recovers, the company's performance is expected to recover quarterly. In the medium to long term, the company is actively promoting the integration and optimization of the cement market in the Northeast and Northwest regions, and its market share in the northern region is expected to increase further. We expect the company's net profit to be 1,483/1,698/1,907 billion yuan from 2023 to 2025, and EPS to be 0.56/0.64/0.72 yuan respectively. The first coverage gave an “increase in holdings” rating.
Risk warning:
There is a risk that the growth rate of infrastructure and real estate investment will drop sharply; coal prices will continue to rise more than expected; and the optimization of the supply-side pattern in the cement industry falls short of expectations.