Qilianshan released the 2023 semi-annual report: the company achieved revenue of 3.34 billion yuan in 2023H1, -15.35% year-on-year; net profit of 240 million yuan after deducting non-attributable net profit of RMB 240 million, -53.21% year-on-year.

Key points of investment

The cement business is under pressure, and profitability is declining

The company achieved revenue of 3.34 billion dollars in 2023H1, -15.35% year-on-year, mainly due to pressure on the demand side of the cement business and a year-on-year decline in the sales price of the company's cement products. On the cost side, 2023H1's operating cost was 26.01 billion yuan, a year-on-year decrease of 8.51%, mainly due to a decrease in the price of cement raw materials. On the cost side, 2023H1's sales/management/financial expenses were 0.35/3.12/-06 billion, respectively, +25.5%/+5.6%/-44.0%, respectively.

On the industry side, supply-side overrun verification, the cement industry's capacity utilization rate continues to decline, and profitability continues to decline. In the first half of the year, the country's cement production was 953 million tons, a year-on-year decline of 2.44% for full caliber, and production was the lowest in the same period in nearly 12 years. Currently, the cement industry is still in an era of long-term and global overcapacity, with an overcapacity rate of over 40%.

▌The asset replacement process is carried out as scheduled, and the listing process is progressing

Currently, the company is undergoing an asset replacement with CCCC Group (“CCCC Design” is used below to refer to the company after the asset replacement has been completed). On May 30, 2023, since the relevant information in the application documents has expired, the company applied to the Shanghai Stock Exchange to stop reviewing this transaction, and the company received a notice from the Shanghai Stock Exchange to stop reviewing this transaction on May 31. As of July 28, 2023, the company has updated the relevant audit report financial data and evaluation information in the application documents to March 31, 2023, and received a notice from the Shanghai Stock Exchange to resume review. As of August 17, 2023, the company has once again revised, added and improved the restructuring report based on the Shanghai Stock Exchange's further audit opinions and the latest progress of the project. After the review and approval by the Shanghai Stock Exchange, the subsequent process still requires review and registration by the Securities Regulatory Commission, and is expected to proceed as scheduled.

The competitive advantage of invested assets is remarkable, and the overseas growth logic is steady

CCCC Design has a remarkable competitive advantage. He is the editor-in-chief of the “Highway Engineering Technical Standards”, known as the “Constitution of the Highway Industry”, and has received more than 2,000 engineering design awards. In terms of per capita output value and per capita profit, in 2022, the average revenue generated by mid-year design was 1,514,000 yuan, and per capita profit was 206,600 yuan, ranking first and third among engineering consulting and design enterprises, respectively.

With excellent design capabilities, CCCC Design is expected to become a promoter of Chinese design standards along the Belt and Road. China Communications Construction's overseas business accounted for about 14% in 2022, while CCCC Design accounted for only 3.86% of overseas revenue in 2022. After CCCC Design is listed, overseas markets are expected to strongly drive performance growth.

Profit forecasting

Since the asset replacement has not yet been completed, we forecast the company's performance based on the cement business, taking into account the supply and demand situation in the cement industry, and lowered the company's net profit for 2023-2025 to 4.4, 5.5, and 690 million yuan, corresponding EPS to 0.57, 0.71, and 0.89 yuan respectively. The current stock price corresponding to PE is 19.5, 15.6, and 12.5 times, respectively. Considering that the company's purchase of CCCC design assets is progressing smoothly, maintaining the “buy” investment rating.

Risk warning

(1) Asset replacement progress falls short of expectations; (2) fixed asset investment falls short of expectations;