Incidents: Recently, the company announced its three-quarter report for 2023. From January to September, the company's revenue was 24.2 billion yuan, +10.8% year-on-year; net profit was 1.87 billion yuan, -15.8% year-on-year. The company's 23Q3 revenue was 8.3 billion yuan, +12.3% year-on-year; net profit was 680 million yuan, +6.9% year-on-year.

Comment:

Overseas cement boosted sales growth, while aggregate and concrete sales continued to grow at a high rate.

23H1's cement clinker sales volume was 29.95 million tons, +2.1% year-on-year (-0.8% year-on-year in China), and the company's overseas cement grinding production capacity reached 16.77 million tons, accounting for 14% of the company. We expect 23Q3's overseas cement sales growth performance to continue to be better than that of the domestic segment (from July to September 2023, the country's cement production is -5.7%, -2.0%, -7.2%, respectively).

The revenue achieved by 23H1's non-cement business accounts for 48% of the company's total operating income, and the net profit attributable to shareholders of the parent company accounts for 56%, which has become an important contributor to the company's profits. Thanks to the company's strong capital expenditure in the past and ongoing projects that have maintained a high level, the production capacity of related businesses continues to expand. We expect 23Q3's aggregate and concrete business revenue to continue to grow at a high level.

The increase in gross margin was greater than the increase in the expense ratio, and the level of profit performed well.

23Q3 The company's comprehensive gross margin was 30.0%, +3.6pct year-on-year and +2.6pct month-on-month. We expect the company's internal cost reduction and efficiency and highly profitable overseas business to support the gross margin. 23Q3 The company's expense ratio was 17.1%, +2.1pct year-on-year, +4.9pct month-on-month. The year-on-year increase in 23Q3 gross margin was greater than the increase in the expense ratio. Benefiting from this, the 23Q3 net margin was 10.5%, +0.9 pct year-on-year.

Maintain a “better than the market” rating. We believe that under a strong capital expenditure plan, the growth of the company's overseas cement, aggregate and concrete business is highly sustainable; the company's dividend ratio remained at about 40% from 2019 to 2022, positively rewarding shareholders. We expect the company's 2023-2025 EPS to be about 1.39, 1.68, and 2.07 yuan, giving the company 10 to 12 times PE in 2023, with a reasonable value range of 13.90 to 16.68 yuan/share.

Risk warning. Demand for real estate infrastructure fell short of expectations; new production capacity exceeded expectations.