Incident review: The company's 2023Q1-3 revenue was 24.165 billion yuan, up 10.79% year on year; imputed net profit was 1,874 billion yuan, down 15.75% year on year; net profit after deduction of 1,824 million yuan, down 14.44% year on year; Q3 single-quarter revenue was 8.333 billion yuan, up 12.29% year on year; imputed net profit was 682 million yuan, up 6.89%; net profit after deduction was 653 million yuan, up 9.72% year on year.
Q3 Demand in the cement industry is sluggish, and the company still achieved performance growth. The growth rate of infrastructure investment in Q3 slowed in the single quarter, new housing starts and construction area declined year-on-year, and the average cement price in south/southwest China fell 10.96%/11.50%, but the company's Q3 revenue/net profit was +12.29%/+6.89% year-on-year, and still achieved positive growth. We believe that: 1) The share of non-cement business continued to increase, and the share of 2023H1 revenue reached 41.94%. Among them, the high gross aggregates business accounted for 13.66%, reducing rapid revenue fluctuations caused by cement demand; 2) The company's overseas cement business expansion, The production capacity of 2023H1 cement grinding has reached 16.77 million tons/year, an increase of 39.75%; 3) The price of 2023Q3 coal also fell by 31.51%, which hedged the decline in profit caused by the decline in some cement prices.
There has been a steady increase in cash flow, and the increase in accounts receivable may be due to the expansion of the concrete business. The company's gross margin for 2023Q3 was 26.31%, down 1.14pct, and the gross margin for the Q1-Q3 single quarter was 20.23%/27.37%/29.96%, year-on-year -6.09pct/-2.05pct/+3.64pct; the cost rate for the Q1-3 period increased by 12.55% and 0.54pct, of which the company's sales/management and development/financial expenses were 4.59%/6.06%/1.91%, respectively, -0.45pct/+0.54pct/+ 0.45pct; asset and credit impairment loss ratio of 0.21% minus 0.01pct; net profit margin of 7.76% decreased by 2.44pct. The net operating cash flow of the 2023Q1-3 company was 3,503 billion yuan, up 39.52%, and the net operating cash flow of 1,376 billion yuan in Q3 alone increased 10.62%. Growth was achieved despite weak cement demand; Q1-3 revenue ratio fell 4.21pct from 90.51%, and payout ratio decreased 10.10pct from 75.15%. As of the end of September, the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, and advance receivables and contract liabilities were 27.47/36.45/79.70/919 billion yuan respectively, which was a year-on-year change of +42.41%/+7.03%/-12.37%/+34.82% from the beginning of the year. The rapid increase in accounts receivable may be due to an increase in the scale of the concrete business.
Lay out the “Belt and Road” and continue to promote overseas expansion. Since 2011, the company has gone overseas to participate in international market competition. So far, the 11 “Belt and Road” joint construction countries have a total cement production capacity of 20 million tons and annual revenue exceeding 4 billion yuan, achieving good economic benefits. At the “Belt and Road” Entrepreneurs Conference held on October 17, 2023, Huaxin Cement signed an agreement with Brazil's Inter Cement Group to acquire its plants in South Africa and Mozambique with a project value of US$230 million. After the acquisition is completed, the company will receive 1.8/3.3 million tons of cement production capacity in South Africa/Mozambique, further increasing the scale of overseas business.
Investment suggestions: We expect the company to achieve operating income of 327.72/359.10/40146 billion yuan and net profit of 28.16/31.94/3.767 billion yuan in 2023-2025. The corresponding PE was 11.00/9.70/8.22 times, respectively, maintaining the “increase in holdings” rating.
Risk warning: macroeconomic fluctuation risk; downstream demand fluctuation risk; overseas business risk