1H23 performance is slightly lower than we expected.
The company announced 1H23 results: revenue 3.21 billion yuan, year-on-year-9%, return net profit 531 million yuan, year-on-year-25%, deducting non-return net profit 386 million yuan, year-on-year-50%; of which 2Q23 revenue 1.82 billion yuan, year-on-year-11%, return mother net profit 359 million yuan, year-on-year-2%. The company's 1H23 performance was slightly lower than we expected, mainly because the company's profit per ton was under pressure to exceed our expectations.
1) benefit from the new production line put into production, sales growth compared with the same period last year. 1H23 cement clinker sales volume of 9.97 million tons, year-on-year + 1.57 million tons / + 19%. Benefit from 2H22 Guangxi du'an, 1H23 Guizhou Duyun production line put into production, the company still achieved sales growth in the context of weak demand. 2) the year-on-year price decline is greater than the cost drop, and the gross margin per ton is under pressure. We calculate that the average price of cement clinker per ton of 1H23 company is about 279 yuan, year-on-year-19%, ton cost about 206yuan, year-on-year-5%, ton gross profit about 73 yuan, year-on-year-43%. 3) the cost of tons is basically the same as that of the same period last year. We calculate that the cement clinker ton cost of 1H23 Company is about 39 yuan, which is basically stable compared with the same period last year. 4) aggregate and environmental protection business are under pressure to a certain extent. 1H23 company aggregate sales of 6.53 million tons, year-on-year-1.31 million tons /-17%, due to the price drop of 31% year-on-year, aggregate gross profit margin-9.2ppt to 70.3%. 1H23's environmental protection business revenue of 113 million yuan, year-on-year-12%, gross profit margin-10.4ppt to 49.3%. 5) the operating net cash flow is more resilient. The operating net cash flow of 1H23 is 564 million yuan,-13.9% compared with the same period last year, which is obviously narrower than the profit decline. 6) non-recurring gains and losses hedge against the decline of the main industry to a certain extent. The securities investment income and fair value change income of 1H23 Company add up to about 210 million yuan, of which the equity investment business gradually contributes income to hedge the downward pressure of the main business.
Trend of development
Cement prices in the Yangtze River Delta are in deep decline, and the company is still under pressure to make profits in the third quarter. According to Zhuo Chuang, as of August 19, the average price of cement in the 3Q23 Yangtze River Delta continued to decline by 16% compared with 2Q. We believe that the current cement price in the Yangtze River Delta is in the bottom range and the rising trend has not been formed yet. Considering that the cost side of the decline is limited, we expect that the price and ton profit of 3Q23 in eastern China may still be significantly under pressure, and the performance pressure remains.
Diversified business layout is expected to gradually contribute to earnings, hedging the downward pressure of the main industry. In the first half of the year, the company's equity investment business contributed some incremental profits, and the results gradually emerged, while the aggregate and environmental protection business with the extended layout of the industrial chain were under pressure together with the main industry, but we believe that with the gradual improvement in demand, the growth space and potential profit contribution of aggregate and environmental protection business are considerable, which is still expected to promote the company's steady growth in the medium term.
Profit forecast and valuation
Due to the downward adjustment of the company ton profit assumption, we reduce the net profit of 2023 8.6x/7.0x 24e by 31.7% 24.8% to 1.052 billion / 1.285 billion yuan, the current stock price corresponds to 2023x24e CPG E, and we reduce the company's target price by 10% to 12.6 yuan. The adjustment is less than the profit adjustment mainly because the industry boom is expected to recover from the bottom, corresponding to 2023x24E 11.6x/9.5x Pmax E. Imply 35% of the uplink space.
Risk
The recovery of demand is not as expected, and the market competition intensifies.