The company released its 2023 annual report on August 22. The company's net profit for the first half of the year was 267 million yuan, down 45.76% from the previous year. The profit declined a lot, mainly because cement prices in Jiangxi and surrounding regions fell month by month. Currently, the decline in cement prices has not stopped, and the second half of the year may still face challenges. However, under a steady growth trend, we expect cement demand to recover in 2024, maintaining the company's buying rating.
Key points to support ratings
Profits have declined a lot, mainly due to the continued decline in cement prices in the region. The company achieved revenue of 4.106 billion yuan in the first half of the year, a year-on-year decrease of 29.74%, mainly due to a 98.87% drop in trade business, and trade revenue from 1,518 million yuan in the same period last year to 17 million yuan this year. We believe that focusing on the main business is more conducive to strengthening control, improving quality and efficiency, and leveraging the synergistic effects of the cement industry chain. In the first half of the year, the company's net profit to parent was 267 million yuan, down 45.76% year on year, and profit dropped a lot. The company's net cash flow from operating activities in the first half of the year was 154 million yuan, a significant improvement over last year's outflow of 82 million yuan. In the first half of the year, the company's gross profit margin was 21.16%, and the net interest rate was 9.54%.
Volume increases and prices decrease, share increases; trade decreases, focusing on the main business. The company produced 9.99 million tons of cement in the first half of the year, an increase of 9.48% over the previous year, while the cement production in Jiangxi Province in the first half of the year was 37.74 million tons, a year-on-year decrease of 3.78%.
The company's output has bucked the trend, and its production volume share has increased a lot. We believe this is mainly due to the company's continuous exploration of core regions and continuous development of surrounding regions. The increase in share may mean that the company's market competitiveness and voice are expected to increase, or it may help the company's leading industry to stop production at the wrong peak and maintain regional prices.
According to Zhuochuang information, we estimate that the weighted cement reference price in the Jiangxi region was about 387.29 yuan/ton in the first half of the year, down 44.46 yuan/ton from the average for the whole year of 2022. This is the core reason for the decline in the company's profit in the first half of the year.
In terms of revenue composition, in the first half of the year, the company's cement, concrete, and aggregate achieved revenue of 27.81/10.87/143 million yuan, respectively, with a year-on-year ratio of -1.41/-9.75/ -7.66%, accounting for 67.74/26.48/ 3.47% respectively. After a sharp drop in trade business revenue, the share of the company's main business increased relatively rapidly.
The price of cement has not stopped falling, but we are optimistic that next year's steady growth will drive a recovery in regional demand. Since entering the third quarter, cement prices in the region have continued to fall. We have not seen a clear trend of stopping the decline. We expect the company's performance may still be under pressure. However, we believe that the current steady growth tone remains unchanged. Infrastructure may be expected to be one of the important drivers of steady growth next year. Demand for cement is expected to be boosted, and the company's performance is also expected to recover.
valuations
Considering that regional cement prices continue to fall, we lowered our original profit forecast. The company is expected to achieve revenue of 97.59, 104.26, and 11.152 billion yuan in 2023-2025; net profit of 729, 7.65 million yuan, and 929 million yuan; earnings per share of 0.91, 0.96, and 1.16 yuan respectively, corresponding to price-earnings ratios of 9.0, 8.5, and 7.0 times.
The main risks faced by ratings
Coal prices have risen, demand for cement has declined, and the pattern has worsened.