Description of the event

The company disclosed its 2023 annual report: achieved operating income of 107.38 billion yuan, a year-on-year decrease of 19.01%; attributable net profit of 1,965 billion yuan, a year-on-year decrease of 56.74%.

Incident comments

According to the Bureau of Statistics, the country's cement production in 2023 was 2,023 million tons, a year-on-year decrease of 0.7%. The overall price of cement showed a trend of high and low, fluctuating adjustments. Price performance was sluggish; corporate profits shrunk sharply, and industry profits were meager.

As far as the company is concerned, the total annual sales volume of cement and clinker was 263 million tons, down 3% year on year; ton revenue was 270 yuan/ton, down 58 yuan/ton; ton cost was 231 yuan/ton, down 50 yuan/ton year on year. The cost reduction was far greater than that of the industry, reflecting the company's outstanding results in technical reform and internal mining. The final ton gross profit was 39 yuan/ton, down 9 yuan/ton year on year. During the reporting period, 142.16 million tons of aggregate were sold, an increase of 23.55% over the previous year. We estimate aggregate tonnage revenue of 41 yuan/ton, a year-on-year decrease of 7 yuan/ton, a tonnage cost of 23 yuan/ton, a year-on-year decrease of 2 yuan/ton, and a final tonne gross profit of 18 yuan/ton.

In addition, the company's other revenue during the reporting period was 1.04 billion yuan, mainly government subsidies; asset disposal income of 540 million yuan, and non-operating income of 720 million yuan; it was also an important component of the report's performance.

The company carried out asset integration with the parent company in 2020. At that time, it made a gambling commitment with the parent company China Building Materials Co., Ltd.: the promised cumulative net profit for 2021, 2022 and 2023 (limited to the net profit corresponding to the underlying equity, excluding minority shareholders' profit) was 35.5 billion yuan, the actual cumulative net profit was 13.7 billion yuan, and the amount of unrealized net profit was 21.8 billion yuan. In view of this, China Building Materials Co., Ltd. needed to use equity and cash to compensate the company for a total compensation of 21.8 billion yuan. .

By the end of the reporting period, the company had a clinker production capacity of 320 million tons, with an output of 205 million tons; commercial concrete production capacity of 370 million square meters, with an output of 77 million square meters; and an aggregate production capacity of 220 million tons, with an output of 188 million tons. Currently, the cement business has basically bottomed out, and it is expected that the company will achieve higher growth flexibility overseas and in the aggregate business.

The expected 2024-2025 performance is 2 to 2.9 billion, corresponding PE is 30 to 21 times, and the purchase rating.

Risk warning

1. Demand recovery falls short of expectations; 2. Aggregates, etc. are progressing slowly.