Introduction to this report:

The company released its 2023 annual report, which is in line with market expectations. The annual cement sales volume declined year on year. The company achieved remarkable results in cost reduction and efficiency, and the bottom profit of Q4 cement rebounded slightly from month to month.

Key points of investment:

Maintain an “Overweight” rating. The company achieved revenue of 107.4 billion yuan in '23, -19% year-on-year, net profit after deducting non-return to mother of 585 million yuan, or -78.37% year-on-year, in line with market expectations. Taking into account the increased competitive pressure in the cement market since 24Q1, the 2024-2025 EPS was reduced by 0.20 and 0.23 yuan (-0.26, -0.31), the EPS for the new 26 years was 0.29 yuan, the reference PB of comparable companies was 0.76 times, and the target price was lowered to 8.82 yuan.

Sales declined due to falling industry demand. In 2023, the company achieved cement sales of about 260 million tons, down from the 0.7% decline in the same period as the industry. Under the impact of falling industry demand, the company, as an industry leader, sacrificed part of its sales volume in order to maintain the balance between supply and demand in various regions.

The results of reducing costs and increasing efficiency at the bottom of profit were remarkable. We estimate that the average factory price for Q4 was 245 yuan/ton, and the price rose slightly from month to month. Gross profit per ton was 44 yuan/ton, +9 yuan/ton. Net profit per ton changed from loss to profit. The month-on-month improvement in ton profit was mainly due to the company's cost reduction and efficiency at the end of the year, which led to a significant decrease in comprehensive costs.

The parent company actively fulfills its performance and impairment promises. The parent company China Building Materials Group implemented restructuring performance and impairment compensation promises. The company's performance promise did not achieve profit of 21.8 billion yuan in 21-23. The announcement stated that the impairment promise expected to recover shares of 19.067 billion yuan, as well as 929 million yuan in dividends during the corresponding share commitment period, and recoverable cash compensation of 1,825 billion yuan. With the determination of the impairment compensation amount for 24 years, the repurchase of shares is expected to reduce the company's share capital and increase the company eps.

Risk warning: Macroeconomic downturn, raw material costs rising.