Introduction to this report:
The company's sales policy is expected to be more active. The large aggregate production capacity layout in the early stages has begun to be gradually released, and the performance contribution will gradually become obvious.
Summary:
Maintain the “Overweight” rating. In the first three quarters of 2023, the company's revenue of HK$17.893 billion decreased by 26.1%, and net profit of about HK$7.1 billion decreased by 61.3%. The emergence of a passive shutdown of high-cost production capacity in the industry region means that the pressure on the short-term supply and demand environment has reached the bottom. The medium to long term, depending on the introduction of carbon trading in the industry, integration or clearance will be an important inflection point. The company's large investment in the aggregate business in the early stages has begun to contribute profits and is expected to continue to increase earnings, maintaining the “increase in holdings” rating.
The sales growth rate is expected to decrease with the base figure and the sales strategy to improve more actively. The company's cement sales volume in the first three quarters was 45.55 million tons, a decrease of 13.3%. Among them, the impact on the demand side and the steady sales strategy were the main reasons. Looking ahead to Q4 and 2024, the base figure will begin to decline. At the same time, the demand side fiscal policy and other forces are expected to reflect the resilience of long-term demand in the South China region where the company is located may maintain its advantage, and the company is also expected to adopt a more aggressive sales policy, so the sales growth rate is expected to begin to improve.
Prices have entered the market-based bottom-finding stage, and stability on the cost side may be expected to increase. The company's average cement sales price in the first three quarters was about HK$324 per ton, a decrease of 10.7%. High-cost production capacity in core South China and other regional industries has come to a standstill. Therefore, this kind of price has already entered the market-based bottom-finding stage in an environment of weak demand. The company estimated the cost of cement tonnage for the first three quarters to be about HK$278/ton, a decrease of about HK$26/ton, mainly due to the year-on-year improvement in coal costs, optimization of unit energy consumption, and exchange rate factors. The factors of high cost fluctuations are weakening, so tonne cost expectations may be more stable.
Profits from the company's aggregate business will gradually contribute, and the industry is looking forward to a turning point in the pattern. As of June 30, 2023, the company has an annual aggregate production capacity of 83.4 million tons. With the addition of newly acquired aggregate projects, after completion, the company's annual aggregate production capacity is expected to reach 146.4 million tons, and the annual production capacity of aggregates under construction controlled by joint ventures and joint ventures is about 13.6 million tons. The company's aggregate resource reserves adopt a large base model, and the procedures are formal and smooth, so production capacity and profit releases have already begun to be realized and their share will become more obvious. The industry pattern has bottomed out, and carbon trading and industry integration are progressing, so it is worth looking forward to a turning point in the pattern.
Risk warning: A cliff-style decline in demand and relaxation of supply-side regulation.