Key points of investment
Incident: China Building Materials disclosed 23H1 results: revenue fell 8.5% year on year to 102.37 billion yuan, gross margin -2.2ppt to 17.2%, and net profit of returning mother fell 74.9% year on year to 1.4 billion yuan.
Comment: Summarizing subsidiary data, it is estimated that the net profit of the “cement +” /new materials/engineering technology service sector in the first half of the year was 2.6/21.1/650 million yuan, respectively, compared to -91.2%/-28.4%/+5.9%. The new materials sector became the main profit contributor.
“Cement+” sector: Net profit for the first half of the year was estimated to have recorded a loss, mainly due to a drag on the cement sector. Q2 cost improvements drove profit recovery month-on-month; rapid expansion in the scale of the aggregate business contributed to profit.
Cement: Demand on the real estate side was sluggish. In the first half of the year, the country's cement & clinker sales volume fell 2.6% year on year; the company's cement & clinker sales volume fell 2.6% year on year; the average tonne price fell 55 yuan to 298 yuan; the decline in coal prices and internal technical upgrades brought about an increase in production efficiency. The estimated tonne cost fell 29 yuan to 260 yuan year on year; and gross profit per ton fell 26 yuan to 38 yuan year on year.
Aggregates: Production capacity was released smoothly. Aggregate sales increased 19.3% year-on-year/11.22 million tons to 69.3 million tons. The price drop affected the year-on-year decline in gross profit per ton, but the expansion of scale led to an increase in profit contribution.
Commercial volume and prices fell sharply. Sales volume fell 9.7% year on year, and one-sided gross profit fell by about 18 yuan to 42 yuan year on year.
The new materials sector is developing steadily. The first tier has a stable position and steady operation, the second tier continues to expand its market share, and the third tier plans to contribute incremental benefits as soon as possible.
Demand for glass fiber recovered slowly. The company adjusted its structure and increased the share of sales of high value-added products. H1 glass fiber sales volume reached a record high of +19.7% to 1.68 million tons. The average sales price per ton was -28.5%, and profit bottomed out.
The transformation of the gypsum board business into an integrated service provider for consumer building materials manufacturing has shown results. Prices and sales volume remained stable, and were basically the same year on year. Unilateral gross profit was +0.17 yuan to 2.4 yuan year on year, and profit improved significantly from month to month.
Wind turbine blades completed business integration, sales volume was +27.4% year-on-year, cost pressure was reduced, and profitability improved markedly.
The expansion of carbon fiber production capacity led to a 60% year-on-year increase in sales volume, but competition in the industry intensified, and prices fell 23.5% year-on-year.
During the period, the company continued to break through core technology, accelerate the construction of the Lianyungang base, and continue to seize incremental opportunities in the industry.
The lithium battery separator business is progressing smoothly. H1 sales volume increased 42.5% year on year to 7.1 million square meters, single sales price dropped slightly by 2% to 142 yuan, net profit per flat improved year on year, and construction of five major 1 billion square meter bases accelerated.
The Engineering Technology Service Division benefited from the liberalization of overseas business. The amount of overseas contracts increased 205% year on year, and the overall amount of new contracts signed increased 68% year on year to 40.6 billion yuan. Business quality was further optimized, and gross margin increased.
Optimize the debt structure and reduce financial expenses. Management expenses during the period were +340 million yuan to 9.48 billion yuan, and sales expenses were +70 million yuan to 18.01 billion yuan; loans increased by 19.22 billion yuan in the first half of the year, and financial expenses were -330 million yuan to 2.66 billion yuan. Financing management will continue to be strengthened in the second half of the year.
Our view: Real estate demand-side policies are being implemented intensively. With the peak season in the second half of the year approaching, demand for cement is expected to improve month-on-month, superimposed costs are declining, and the profitability of the basic building materials sector is expected to improve year-on-year and month-on-month; the three-tier construction of the new materials business is in an orderly manner. The company has begun to make a breakthrough in international transformation, striving to re-create a “Chinese building materials” overseas in about 10 years to become a world-class materials industry investment group with international competitiveness. We adjusted the company's profit forecast. We expect the company's net profit to be 60.63/89.61/12.433 billion yuan respectively for 23/24/25, with a year-on-year difference of -23.7%/+47.8%/+38.8%. Maintaining the “increase in holdings” rating, the target price is HK$5.4.
Risk warning: economic downturn; coordination breakdown; large fluctuations in raw material prices; overseas business risks.