Key points of investment
Event: The company disclosed its three-quarter report for 2023. The first three quarters achieved revenue/net profit of 22.344 billion yuan/-322 billion yuan, -18.3%/-119.7% year-on-year, and net profit of 7.859 billion yuan/47 million yuan in the third quarter, or -25.2%/-90.5% year-on-year.
Q3 The volume of cement fell steadily in price, and the net profit per ton declined month-on-month. (1) In Q3, the country's cement production was -5.1% year on year. Demand was weak. The contradiction between supply and demand increased the pressure on industry inventories. Prices fell sharply in the off-season, and the steady recovery after August was weak. (2) The company's Q3 revenue fell 25.2% /15.5% yoy, respectively. The company's cement and clinker sales are expected to be basically stable year over year. However, due to the large decline in cement prices in the company's layout in the Beijing-Tianjin-Hebei market and Henan, Chongqing, Hunan, etc., the overall average price drop exceeds the reduction in coal and other costs, the company's Q3 comprehensive gross profit margin was 17.4%, and -0.8pct/+0.1pct, respectively. It is estimated that the company's Q3 cement and clinker composite tonnes have declined month-on-month. (3) Net profit for Q3 decreased by 377 million yuan to 47 million yuan month-on-month, which is expected to be mainly due to a decline in net profit per ton of cement.
The overall cost side was stable, capital expenditure declined, and the debt ratio remained stable. (1) The company's fee rate for the Q3 period was 16.9%, +4.1pct year on year, but the total expenses for the period were -1.5%. The increase in the fee rate was mainly the impact of the year-on-year decline in product prices on the denominator end, and the cost control results were good.
(2) The net cash flow from the company's Q3 operating activities was 1,277 million yuan, -16.6% year on year, which was better than profit performance. Cash payments for the purchase of fixed assets, intangible assets and other long-term assets in Q3 was 536 million yuan, down 33.1% year on year. (3) The company's three-quarter balance ratio and interest-bearing debt balance were 49.3% /21,233 billion yuan respectively, +0.1 pct/+61 billion yuan over the previous year.
Macroeconomic countercyclical adjustments have been strengthened in the medium term, and Beijing-Tianjin-Hebei is expected to benefit as a key area for post-disaster reconstruction. The current boom in the industry has bottomed out, the losses of fiercely competitive regional enterprises have intensified, and the pressure to clear production capacity at low efficiency and cost continues to increase. Short-term demand is weak, and high inventories suppress room for price rebound. However, with an additional trillion dollars of special treasury bonds recently launched, Beijing-Tianjin-Hebei is expected to benefit as a key region for post-disaster reconstruction. Medium-term macro-countercyclical adjustments will increase, fiscal policy will continue to gain strength, and physical demand is expected to rise steadily. We believe that improved demand is expected to change industry expectations and accelerate the restoration of industry competition order. Combined with increased off-season misspikes, industry sentiment is expected to improve in 2024.
Profit forecast and investment rating: As a cement leader in the northern region, the company's profit per ton has been impacted by overcapacity in the region and increased market competition. However, the company has increased its internal industrial optimization efforts, promoted the “Six Precise Management”, and extended the industrial chain externally to continuously enhance its overall competitiveness. Macroeconomic countercyclical adjustments are gaining strength in the medium term, and the Beijing-Tianjin-Hebei region accounts for a high share of infrastructure demand. As a key region for post-disaster reconstruction, it is expected that the economy will benefit, and the economy is expected to improve at the bottom. Based on cement demand falling short of expectations and increased market competition during the year, we lowered our 2023-2025 net profit forecast to -7.7/71/1.1 billion yuan (previous value was 17.9/25.2/2.57 billion yuan) to maintain the “increase in holdings” rating.
Risk warning: Physical demand for infrastructure falls short of expectations, and there is a risk that regional competition will worsen.