The results were in line with the forecast, and 4Q23 changed losses month-on-month
China Resources Building Materials Technology announced its 2023 results. Net profit attributable to mother in 2023 was -60.1% to HK$640 million, in line with the company's performance warning guidelines (year-on-year decline of 58%-67%). Due to a further month-on-month decline in gross profit of cement tons, the month-on-month loss turned to a slight loss of HK$70 million in the 4Q23 quarter. Considering the stabilization of housing construction investment since 2024, it remains to be seen. Chemical bonds in some regions may also suppress cement demand to a certain extent, and the relationship between supply and demand in the industry is still under pressure. Based on a lower tonne gross profit assumption, we forecast that the company's 24-26 EPS will be HK$0.08/0.07/0.05 (previous value: HK$0.31/0.33/- HKD), and the target price will be reduced by 15.2% to HK$3.63. Based on 0.57x2024 PB, it will be discounted 20% from the -1 SD net market ratio since listing to reflect the challenges of the cement business. Considering that the current stock price already fully reflects the expectations of the cement business's profit challenge, the competitiveness of the company's transformation and upgrading is gradually being unleashed to maintain “buying.”
The volume and price of cement and commercial mixtures are under pressure
The company's cement and concrete sector sales volume and average sales price both declined in 2023, which is the main reason for the significant year-on-year decline in the company's profit. Cement/concrete sales fell 8%/14% to 69.3 million tons/9.33 million square meters respectively, but 4Q23 cement and commercial mix sales were +11.6%/12.8%, respectively, reflecting that the company's market strategy had begun to be adjusted in 4Q23. The average sales price of cement/concrete fell 12%/13% to HK$273 per tonne and HK$367 per cubic metre, respectively. Despite an 8%/13% reduction in the unit cost of the cement and concrete sector, the gross profit level per unit narrowed year on year, with a decrease of HK$16 per ton and HK$5 per cubic meter, respectively.
The aggregate business is expanding, and subsequent growth can still be expected
The company gave full play to the integrated advantages of the cement, concrete and aggregate sectors, and the aggregate business developed rapidly. In 2023, it ushered in a concentrated production capacity release period. Projects such as the Guangxi Nanning Project with an annual production capacity of 5 million tons and the Guizhou Anshun 2 million ton project will be steadily put into operation in 2023. The company achieved aggregate sales volume of 45.58 million tons in 2023, an increase of 201% over the previous year, contributing HK$1.6 billion in revenue. By the end of 2023, the company has an annual production capacity of 92.5 million tons of aggregates in operation (including trial operation), and there are still plans to gradually start production capacity in the next few years. The company expects that after all current projects are completed, the company's annual aggregate production capacity will reach about 150 million tons.
There are still challenges in supply and demand in the cement industry. The recovery of profits in the main business is still pending. New home sales have been in a year-on-year decline since the beginning of the year, and the stabilization of housing construction investment is still under some pressure. In the context of chemical debt, infrastructure investment in some regions may also be under pressure in 2024, and challenges on the demand side of the cement industry continue. Despite the industry's general desire to restore profitability, the effectiveness of regulating supply and demand through erroneous peak production is weakening marginally, and the restoration of the profitability of the main cement industry may still take time.
Risk warning: Real estate policies are stricter than expected, and competition in the cement industry is weaker than expected.