Demand for cement is poor, prices are falling, and revenue and profit are under pressure
The company released its semi-annual report for 23 years. 23H1 achieved revenue of 3.209 billion yuan, -9.49% year-on-year, and net profit of 531 million yuan over the same period, -24.85%, minus 386 million yuan in non-net profit, -50.26%. Looking at a single quarter, 23Q2 achieved revenue of 1,819 million yuan, -11.28% year-on-year, and achieved net profit of 359 million yuan, or -1.99%. In the first half of 2023, net revenue and profit performance was under pressure due to multiple adverse factors, such as insufficient investment in infrastructure and real estate projects, low demand, and continuous fluctuation and decline in cement prices.
Cement sales volume increased year on year, raw fuel material prices fell, tonnage costs decreased
The company sold 9.97 million tons of 23H1 cement and clinker, +18.69% year on year. The average tonne price fell 67.86 yuan to 279 yuan/ton, the tonne cost fell 30.50 yuan to 206.30 yuan/ton, and finally achieved gross profit per ton of 72.99 yuan, and 37.36 yuan/ton year on year. We believe that the reduction in the price of raw materials such as coal has contributed to the reduction in tonne costs, but due to the large drop in the average tonne price, gross profit per ton is still declining.
23H1 achieved aggregate revenue of 219 million yuan, -41.57% year-on-year, and sales volume of 6.53 million tons, -14.97% year-on-year. We estimated gross profit per ton of 23.56 yuan, or -15.21 yuan over the same period last year. 23H1 has an annual production capacity of 17.74 million tons of clinker, 21.7 million tons of cement, and two cement clinker production lines under construction. In the future, it is planned that the annual production capacity of clinker will exceed 25 million tons and cement will exceed 35 million tons. The main cement industry still has a lot of room for development.
“Two wings” continue to advance, and equity investment may enter a harvest period
The company has expanded cement kiln collaborative disposal and environmental protection, smart logistics, photovoltaic energy storage and other related industries, and has moderately developed equity investment business in the new economy industry, forming an overall business pattern of “one main, two wings”.
As of 23H1, the company's equity investment in the new economy has reached 1,584 billion yuan. One of the investee companies (Crystal Integration) has been issued and listed, and many of the companies that have been tendered have begun or are planning to begin the listing process.
Profit margins are under slight pressure, and expense rates have risen slightly
23H1's gross profit margin was 29.79%, year-on-year -8.00 pct, of which cement/clinker/aggregate/environmental gross margin was 26.70%/24.34%/70.29%/49.33%, year-on-year -5.70/-9.20/-10.43pct; the period cost rate was 14.24%, +4.93 pct, of which the sales/management/R&D/finance cost rate was 2.13%/9.38%/2.12%/0.61%, year-on-year change +0.38/+2.05/+ 1.74/+0.77 pct
The development of “one main, two wings” can be expected, and the “buy” rating will be maintained
We believe that if project construction accelerates in the second half of the year, it is expected to boost demand for cement, prices are expected to rise, and profits or pick up in the main business. At the same time, environmental protection, equity investment in new economy industries, and new energy businesses such as photovoltaic power generation are expected to contribute incrementally, and “one main, two wings” development can be expected. However, considering some pressure on performance in the first half of the year, the company's net profit for 23-25 was lowered to 10.8/13.3/1.53 billion yuan (previous value was 14.1/17.0/1.87 billion yuan), maintaining the “buy” rating.
Risk warning: cement demand falls short of expectations, peak season price increases fall short of expectations, coal costs rise, etc.