Matters:
The company announced its 2023 annual report and achieved full-year revenue of 141.0 billion yuan, a year-on-year increase of 6.8%, and net profit to mother of 10.43 billion yuan, a year-on-year decrease of 33.4%; the company plans to pay a cash dividend of 0.96 yuan (tax included) per share.
Ping An's point of view:
Sales of cement clinker are stable, and declining prices have put pressure on performance. Revenue increased 6.8% during the period, mainly due to the fact that the company made full use of bulk material supply and marketing channels to serve customers, and trade revenue increased year on year; second, the aggregate, mechanical sand, and commercial concrete business brought performance contributions with the release of production capacity. Revenue increased 73.3% and 24.7% year over year to 3.86 billion yuan and 2.25 billion yuan respectively; however, the cement clinker self-product sales business was affected by weak demand and falling prices in the cement industry, and revenue decreased 14% year on year to 77.9 billion yuan. The company's net profit fell by 33.4% during the period. The main reason for the large decline was that despite the reduction in coal costs, the prices of cement clinker, aggregates, and concrete declined significantly, leading to a year-on-year decline in the overall gross margin of the product by 3 pct to 25.7%. The company's operating rate during the period was 7%, the same as the previous year. In 2023, the company's cement clinker sales volume was 285 million tons, up 0.7% year on year; in 2024, it is planned that net sales volume of cement and clinker (excluding trade volume) will be 299 million tons for the whole year, a steady increase from 2023.
Capital expenditure has been reduced, and the industrial chain has been actively extended. The company's capital expenditure for the year was 19.5 billion yuan. Throughout the year, clinker production capacity was increased by 3.5 million tons, cement production capacity by 7.05 million tons, aggregate production capacity by 40.7 million tons, commercial concrete production capacity by 14.3 million cubic meters, and installed capacity of optical storage and power generation by 67 megawatts. At the end of the period, clinker production capacity was 272 million tons, cement production capacity was 395 million tons, aggregate production capacity was 149 million tons, commercial concrete production capacity was 39.8 million cubic meters, and the installed capacity of operating optical storage power generation was 542 megawatts. Capital expenditure of 15.2 billion yuan is planned for 2024, which will mainly be used for project construction, energy saving and environmental technology reform, and mergers and acquisitions. It is expected to increase clinker production capacity by 3.9 million tons, cement production capacity by 8.4 million tons, aggregate production capacity by 25.5 million tons, and commercial concrete production capacity by 7.2 million cubic meters throughout the year.
Operating cash flow increased sharply, and accounts receivable decreased year over year. The company's revenue ratio during the period was 121.7%, up from 119.6% in 2022, and the current payment ratio was 113.0%, down from 120.2% in 2022. The net cash flow from operating activities was 201 billion yuan, up from 9.65 billion yuan in 2022. The year-end accounts receivable notes and other receivables were $14.42 billion, down from $18.13 billion at the end of 2022.
Investment advice: Considering that the implementation of physical demand for real estate restoration and infrastructure was lower than previously expected, the company's profit forecast was lowered. The net profit forecast for 2024-2025 is estimated to be 9.1 billion yuan and 10.5 billion yuan respectively. The previous forecast was 16.1 billion yuan, 17.8 billion yuan, and an additional forecast of 11.9 billion yuan for 2026. The current stock price corresponds to PE 13.5 times, 11.7 times, and 10.3 times, respectively. Despite the reduction in profit forecasts, considering that Conch is a leader in the cement industry, cost control and operating efficiency have maintained industry-leading levels for a long time. At the same time, after major stock price adjustments, the current dividend ratio and dividend ratio are attractive, so it has maintained a “recommended” rating.
Risk warning: 1) Demand repair or false peak production falls short of expectations, industry supply and demand contradictions or increase: If subsequent real estate sales, construction and repair efforts are weak, or physical demand for infrastructure falls short of expectations, or execution of false peak production in various regions is poor, the increasing conflict between supply and demand in the industry will cause pressure on cement volume and price. 2) Prices of raw materials and fuel continue to rise, and profit margins are under further pressure risk: Currently, coal prices remain high, and the pressure on the cement production cost side is high. If coal and electricity prices continue to rise in the future, it will cause the company's profit margin to be further pressured. 3) Aggregate and new energy businesses have fallen short of expectations: In recent years, the company has been actively expanding businesses such as aggregate, stone, concrete, and new energy to promote collaborative development with the main business and open up space for future growth, but there is a difference between the business model and cement clinker, and there is a risk that related business development will fall short of expectations.