3Q23 performance is slightly lower than we expected.
The company announced 1-3Q23 results: revenue 4.88 billion yuan, year-on-year-5.5%, return to the mother net profit of 701 million yuan,-17.2% year-on-year. Of this total, 3Q23's revenue was 1.67 billion yuan, + 3.1% compared with the same period last year, and its net profit was 169 million yuan, + 21.6% compared with the same period last year. The company's 3Q23 performance is slightly lower than we expected, mainly due to the company's average ton sales price and ton profit pressure slightly exceeded our expectations.
1) sales continued to expand, and the scale of the main business increased steadily. From January to September, the company's total sales of cement clinker was 15.84 million tons, which was + 1.68 million tons (+ 12%) compared with the same period last year. With the production and sales volume of the new subsidiaries in southwest China, the operation scale of the company's main business increased steadily. 2) the extension business of industrial chain such as aggregate is advancing steadily. From January to September, the company's sand and gravel aggregate sales were 10.49 million tons, down 2.05 million tons from the same period last year, which we believe is mainly due to weak market demand. In terms of environmental protection business, the company actually disposed of 210400 tons from January to September, with revenue of 173 million yuan, + 10.9% of the same period last year. 3) under the influence of weak market demand and intensified price competition, the price side is obviously downward, and the profit per ton is expected to be under pressure, but it is still in the leading position in the industry. The average cement price of 1-3Q23 dropped 16.59% compared with the same period last year, and the average clinker price decreased by 19.58% compared with the same period last year. According to the digital cement network, the average cement price of 3Q23 Yangtze River Delta / Southwest China is-16% and 12%. We estimate that the month-on-month decline of the company's 3Q23 ton price may be higher than that of ton cost to a certain extent, and the gross profit per ton is expected to fall back to the range of 50-60 yuan, which is weaker than the previous month, but it is still in the leading position in the industry, demonstrating strong profit resilience.
Trend of development
Core regional prices into the repair channel, the main business is expected to moderate repair. According to the digital cement network, cement prices in the Yangtze River Delta and Southwest China have shown a restorative upward trend in the past 2-3 weeks. considering that coal prices are also rising synchronously, we estimate that the company's gross profit of 4Q tons is expected to be slightly repaired. Looking forward to next year, as the physical workload of infrastructure is expected to gradually fall to the ground, market competition is expected to stabilize, and we expect the company's main business to show a moderate recovery next year.
The business efficiency of industrial chain extension is expected to be released. 1-3Q23 aggregate business is affected by weak demand, production and sales decline compared with the same period last year, but we believe that the company adheres to the strategy of relying on its own cement mines to steadily develop aggregate business, aggregate profitability and stability are expected to maintain a good level. At present, the company is also making steady progress in cement kiln collaborative disposal and optical storage construction, and the benefits and efficiency brought by the extension of the industrial chain in the future are expected to be gradually released.
Profit forecast and valuation
As a result of the downward revision of the ton profit assumption, we reduced the net profit of 2023 10x/9x 24e by 19.2% and 29.1% to 850 million / 910 million yuan, corresponding to the current share price of 2023 Universe 24e. We maintain an outperforming industry rating, and considering that the industry boom is expected to recover slowly from the bottom, we only cut the company's target price by 10% to 11.3 yuan, corresponding to 2023 13x/12x 24e Phand E, implying 33% upside space.
Risk
Demand recovered less than expected and costs rose higher than expected.