The company forecasts that the net profit of homing in the first half of the year will drop by about 80% compared with the same period last year, which we think is mainly due to the high base price of cement and glass fiber in the same period last year. The sharp fluctuation of the company's stock price in the early period is mainly due to the fluctuation of the market's expectation of the recovery of the cement industry, and the fundamental changes of the industry itself are still improving from the bottom and relatively stable. At present, we believe that there is no need to be overly pessimistic about the future fundamentals of the company's main business, and after the valuation has fallen to a low level, the dividend yield has become more attractive, and some long-term logic is worth looking forward to. Maintain a "buy" rating.

Event: the company issued a performance forecast, and the first half of the year's net profit is expected to drop by about 80% compared with the same period last year. Based on this, we estimate that the net profit of 2023H1 is about 1.09 billion yuan, while that of 2023Q2 is about 1.62 billion yuan, down 56.1% from the same period last year.

The larger year-on-year decline in profits is mainly due to the high base price of cement and glass fiber in the same period last year. On the one hand, cement prices and tonne profits in the first half of last year have only accelerated since June and are still high from January to May. On the other hand, the main declines in fiberglass prices and ton profits last year also occurred in the third quarter and remained high in the first half of the year.

Looking back, there is no need to be pessimistic about the fundamentals of the main business.

1) basic building materials: since the beginning of the year, the demand for cement is basically the same as last year, and there is no big fluctuation caused by non-seasonal factors, which is also in line with the expectations of the market at the beginning of the year. Although the elasticity of cement price increase is not as high as expected at the beginning of the year, it has continued to decline since April, but it is more due to the decline in coal costs. The cement-coal price gap in the industry remained stable from April to May and did not decline until June. The decline in June is more due to seasonal factors, with the arrival of the off-season of high-temperature and rainy demand in June, which is usually the period of falling prices and gross margins. Therefore, we believe that although the fundamental recovery elasticity of the cement industry is not up to the high expectations of the market at the beginning of the year, it is still in a state of improvement and stability compared to the bottom, and the core demand of major enterprises is still profit. According to the performance forecasts of each company, we estimate that the aggregate net profit of China National Building Material's three listed subsidiaries (Tianshan shares / Qilian Mountain / Ningxia Building Materials) 2023Q2 is about 1.72 billion yuan, which is significantly higher than the total net profit of 1.130 billion yuan of 2022Q3/Q4, reflecting the trend of improvement from the bottom of the industry.

2) New materials: the main highlight of the sub-products in the first half of the year is the rapid growth of wind power blades, lithium battery diaphragms and waterproofing, while the drag is mainly in the sale of glass fiber and non-recurrent rhodium powder, mainly from the high prices of glass fiber and rhodium powder in the first half of last year. However, we judge that glass fiber has been at the bottom of the industry cycle, and the differentiation between leaders and small and medium-sized enterprises is becoming more and more obvious, and the supply pattern is expected to continue to improve. The plate also went further in terms of internal integration in the first half of the year. In June, Zhonglianzhong, which was announced by Sinopec Science and Technology, proposed to acquire Lianzhong. We expect that the completion of the integration will form a unified platform for China National Building Material's wind power blade business. It is also the largest wind power blade platform in the world, which not only solves the problem of inter-industry competition, but also helps to enhance business coordination.

3) Engineering and technical services: in the first half of the year, Sinopec further promoted profit growth and equipment business competitiveness through the reorganization of Hefei Institute. Although the capacity replacement and transformation of the domestic cement industry has slowed down, the company is expected to promote performance growth and operation quality improvement through the recovery of overseas cement engineering orders and the improvement of equipment and operation and maintenance business. In the company's engineering business, overseas income was 11.5 billion yuan / 50% in 2022 and 14 billion yuan / 79% in 2019, reflecting the potential of overseas engineering business to make up.

After valuations have fallen to low levels, dividend yields have become more attractive, and some long-term logic is worth looking forward to. After the recent stock price adjustment, we forecast that the company's 2023E/2024E PE will be 5.0x/3.8x, which is at an all-time low. If the dividend payment rate of 40% in 2022 is continued, the corresponding dividend yield in 2023-2024 will be 7.4% and 9.6% respectively, with a higher performance-to-price ratio. At the same time, the long-term logic that the company should look forward to in the future includes: 1) carbon trading in the domestic cement industry, elimination of low-energy production capacity, and clearing the supply brought by mergers and acquisitions of large enterprises; 2) the profit contribution of new materials and engineering services is more important. With the stability of the basic building materials sector and the reshaping of the company's valuation, we estimate that the contribution of the two sectors' homing profits has reached 60% and 70% in 2022. 3) the international development of various businesses; 4) the continuous progress of the reform of the company's state-owned enterprises, the introduction of more medium-and long-term incentive mechanisms, and more attention to shareholder returns.

Risk factors: cement business fluctuates sharply due to poor demand and price stability in the cement industry; the development of non-cement business is not as expected; the scale of asset impairment of the company increases significantly; the scale of capital expenditure of the company is too large or the effect is not as expected.

Earnings forecast, valuation and rating: the sharp fluctuation of the company's stock price in the early period is mainly due to the fluctuation of the market's expectation of the recovery of the cement industry, and the fundamental changes of the industry itself are still in a state of improvement and stability compared to the bottom. At present, we believe that there is no need to be overly pessimistic about the future fundamentals of the company's main business, and after the valuation has fallen to a low level, the dividend yield has become more attractive, and some long-term logic is worth looking forward to. Considering that the recovery elasticity of cement profit per ton is not as expected at the beginning of the year, we adjust the company's home net profit forecast for 2023-2025 to 63.84max 82.69 / 10.338 billion yuan (the original forecast is 98.88x12519max 15.565 million yuan). According to the company's PE valuation center 6x in the past five years, 2023 6xPE will be given, corresponding to the target price of HK $5.30. Maintain a "buy" rating.