2023 results are in line with market expectations
The company announced its 2023 results: revenue of 25.55 billion yuan, -12.9% YoY; net profit to mother of 644 million yuan, -60.1% YoY. The company's 2023 results are in line with market expectations.
1) Sales declined year-on-year throughout the year, but the fourth quarter strategy adjustments showed results. In 2023, the company sold 69.3 million tons of cement and clinker, -7.6% year-on-year. The annual sales decline was greater than the industry average. Among them, Guangdong/Guangxi/Fujian/Yunnan/Guizhou sales volume was -1.5%/-16.0%/-6.3%/+1.3%/+2.1% year-on-year. However, the company adjusted its sales strategy in 4Q23. We calculated that the company's 4Q23 sales volume was about 21.96 million tons, +11.6% over the same period last year, showing some results. 2) Price competition in the industry is fierce, and prices and tons of gross profit are under pressure.
In 2023, the average price of the company's cement and clinker was 273 yuan/ton, the unit cost was 239 yuan/ton, the unit cost was 239 yuan/ton, the year-on-year gross profit was 34 yuan/ton, and the year-on-year gross profit was -16 yuan/ton. The decline on the cost side is difficult to completely offset the impact of the price decline. 3) The cost of tons increased year over year. We calculate that the company's cost for a ton of full-caliber cement clinker in 2023 is about 49 yuan, +6 yuan compared to the previous year. 4) Production and sales in the aggregate business increased dramatically, and overall gross margin was stable. In 2023, the company's aggregate sales volume was 45.58 million tons, +201.5% year on year. The average price was -2 yuan/ton to 35 yuan/ton, gross profit margin was 54.3%, -1.1 ppt year on year, which was basically stable. 5) Operating cash flow bucked the trend and capital expenditure contracted markedly. The company's net operating cash flow in 2023 was $3.92 billion, +46.9% year-on-year, and capital expenditure of 5.21 billion yuan, or -53% year-on-year. 6) The balance sheet is healthy and maintains a high dividend payout ratio. At the end of 2023, the company's net loan ratio was 30%, +2ppt year on year. Long-term loans accounted for 85%, and the overall debt situation was stable. The company declared a dividend of approximately HK$0.047 per share, with a corresponding dividend ratio of about 46%, maintaining a high level.
Development trends
The aggregate business has entered a period of rapid growth, and profit contribution is expected to increase. By the end of 2023, the company's aggregate production capacity was about 92.5 million tons, with a potential production capacity of nearly 150 million tons. We believe that the company's aggregate business is expected to enter a period of rapid growth, and production, sales and profit contributions are expected to increase. On the other hand, with the further release of production capacity at the base with higher average sales prices in the Guangdong region, we expect the average price of aggregates and gross profit per ton of the company to increase steadily in 24 years.
Focusing on share and cost, the leading position in the region is expected to be consolidated. The company proposed a market strategy of “seizing share, keeping the bottom line, improving structure, and improving position”, focusing on reducing costs and enhancing core competitiveness throughout the value chain. We expect the company to consolidate its leading position in South China by 2024.
Profit forecasting and valuation
Due to the lower performance of cement prices in the regional market than we expected, we lowered 2024E net profit by 38% to 676 million yuan and introduced 2025E net profit of 804 million yuan. The current stock price corresponds to 2024/25E 12.0x/9.7x P/E. We maintain our industry performance rating. Considering that the company's position as a regional leader is expected to be consolidated and competitiveness is expected to improve, we only lowered the company's target price by 28% to HK$1.93, corresponding to 2024/25E 17.7x/14.3x P/E, implying 47% upward space.
risks
The recovery in demand fell short of expectations, and competition in the industry intensified.