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 14.486 billion yuan, -14.01% year-on-year, net profit of -366 million yuan after deducting non-net profit of 466 million yuan. Looking at a single quarter, 23Q2 achieved revenue of 9.302 billion yuan in a single quarter, -21.69% year-on-year, and achieved net profit of 423 million yuan, or -69.20% year-on-year. 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.
The price increase of cement volume fell, the price of raw fuel materials fell, and the tonnage cost was reduced. The company's 23H1 cement and clinker revenue was 12.361 billion yuan, -11.87%; sales volume was 43.96 million tons, +14.39%; the average tonne price fell 83.79 yuan to 281 yuan/ton, and the tonnage cost fell 29.68 yuan to 251.43 yuan/ton. We believe that the reduction in the price of raw materials such as coal contributed to the lower cost of raw materials such as coal, but due to the large drop in the average tonne price, Gross profit is still declining. 23H1 achieved aggregate revenue of 589 million yuan, +11.81% year on year, sales volume of 15.95 million tons, +15.41% year on year. We estimate that the average tonne price fell 1.19 yuan to 36.95 yuan/ton year on year, tonne cost increased 2.15 yuan to 19.25 yuan/ton, and finally achieved gross profit per ton of 17.70 yuan, or 3.34 yuan year on year. 23H1 added 628 million tons of limestone resources, and has obtained more than 5 billion tons of limestone resources, limestone for construction stone, and dolomite reserves. Adequate resource reserves lay a solid foundation for the development of the main business. The company currently has an annual clinker production capacity of 110 million tons, cement production capacity of 176 million tons, aggregate production capacity of 62 million tons, and hazardous waste disposal capacity of 5.32 million tons.
Profit margins are under slight pressure, and expense rates have risen slightly
Affected by weak market demand, the capacity utilization rate in the northern region is insufficient, and the continued decline in cement prices in the company's core regional market affects profit margin levels. 23H1's gross profit margin was 12.91%, year-on-year -10.75 pct, of which gross margin for non-hazardous disposal of cement/ aggregate/ solid waste was 10.58%/47.91%/29.26%, respectively, year-on-year -12.40/-7.27/-3.33pct; the cost rate for the period was 16.82%, +2.12pct, of which sales/management/R&D/finance cost rate 1.71%/12.43%/0.55%/2.13%, year-on-year change +0.23/+1.61/+0.13/+ 0.14pct Net interest rate under comprehensive influence was -3.14%, year-on-year -10.45 pct.
Expect a recovery in prosperity and maintain the “buy” rating
We believe that if project construction accelerates in the second half of the year, it is expected to boost cement demand and prices are expected to rise. The company is the largest cement industry group in the north, and may benefit from improved demand in North China. However, considering the pressure on performance in the first half of the year, it is predicted that the company's net profit for 23-25 will be lowered to 54/11.9/1.5 billion yuan (previous value of 20.2/2.52 billion 2.78 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.