This report is read as follows:
The company announced the mid-2023 report, the basic building materials plate grinding bottom, new materials plate to contribute the main profits, 23-year provision is expected to maintain less than 4 billion.
Summary:
Maintain "increase" rating: in 2023, the company reported operating income of 102.374 billion yuan, down 8.5% compared with the same period; return to the mother net profit of 1.404 billion yuan, down 74.9% over the same period, lower than market expectations. Taking into account the profit pressure on the basic building materials sector, we lowered our 23-25 net profit forecast to 40.18,56.10 and 7.323 billion yuan (- 20.04,20.50 and-2.021 billion), and lowered the target price to HK $7.2 (- 0.88) according to the 23-year average of 15x PE of comparable companies.
The basic building materials plate is a drag on performance. 2023H1 Group cement clinker sales 142 million, down 2.6% from the same period last year, lower than the industry's 1.3% sales growth. It is judged that under the impact of the cliff decline in industry demand, the company, as the industry leader, sacrificed part of its sales in order to maintain the balance between supply and demand in various regions.
Given that June-August is the worst off-season in 17 years, cement prices continue to fall sharply, judging that the company's July-August earnings per tonne return to break-even, may also represent a return to the bottom point of the industry. In the medium term, the current cement industry is back to break even. We believe that cement dominated by central state-owned enterprises may restart integration at the bottom of the industry, or become an important catalyst to change the current pattern of the cement industry. At the same time, if the follow-up cement industry accelerates carbon trading, the increased carbon trading costs are expected to accelerate the clearance of backward capacity.
The 23-year provision is expected to remain within 4 billion. The company's total provision in 2022 was-100 million, mainly due to the reversal of the previous provision for bad debts, down 1.1 billion from the same period last year. We believe that 2018-2021 is the company's three-year strategic provision period, with provisions of 96,130,128,7 billion respectively, strengthening the balance sheet. Starting from 2021, with the end of the three-year provision program, the total amount of provisions has shown a significant downward trend. We judge that the total amount of corporate provisions in 23 years is expected to be less than 4 billion. Financial indicators are stable. At the end of the reporting period, the company had cash on hand of 32.525 billion; the asset-liability ratio was 61.47%.
Over the past 22 years, the company has held several windows to replace high-interest debt with low-interest debt, and the interest expense reflected by real financial expenses has continued to fall by 317 million compared with the same period last year.
The second phase of 23-year integration is expected to accelerate. With the completion of the first step of cement integration, the new Tianshan business has been managed uniformly according to the new business division and management system, with remarkable results. In 2023, we judge that the integration of new materials such as cement plate, fiberglass plate and graphite will accelerate. We believe that the operation and governance of building materials in China continue to be optimized, the improvement of the balance sheet is expected to accelerate, the company valuation is still significantly undervalued, and valuation repair is already on the way with certainty.
Risk hint: macroeconomic downturn and rising raw material coal prices