Introduction to this report:

The company's 2023 annual report is in line with expectations. Domestic cement sales have declined, overseas cement continues to grow, the share of overseas production capacity has effectively boosted the company's cement profitability, and aggregate/commercial mix sales in the non-cement business have maintained a high increase.

Key points of investment:

Maintain an “Overweight” rating. The company achieved revenue of 33.757 billion yuan in 23 years, +10.79% year over year, and net profit to mother of 2,762 billion yuan, +2.34% year over year, in line with expectations. Domestic cement competition intensified. EPS was slightly lowered to 1.40 (-0.13) /1.64 yuan (-0.13) (-0.13), and the 2026 EPS was added to 1.87. Referring to the comparable company's valuation of 13.02 times the 24-year PE, the target price was maintained at 18.2 yuan.

Domestic cement sales declined, and overseas cement continued to grow. The company achieved sales of 61.9 million tons of cement and clinker throughout the year, +2.5% over the same period. The main reason for the company's sales growth in the context of a decline in domestic cement production was strong growth in overseas cement sales. By the end of '23, the company's overseas cement grinding production capacity reached 20.91 million tons. Looking at the fourth quarter of a single quarter, 23Q4 sold 16.89 million tons of cement and clinker in a single quarter, +2.78% year-on-month, and +12.16% month-on-month. Q4 domestic cement shipments also increased month-on-month in Q3 during the peak season. At the same time, overseas capacity expansion led to an increase in Q4 cement sales.

Increasing the share of overseas production capacity effectively boosts profitability. The company's cement ton price is expected to be 311 yuan in '23, with a gross profit of -30 yuan/ton, and a gross profit of -4 yuan/ton. We expect Q4's gross profit per ton to be 80 yuan, and -15 yuan/ton month-on-month. With the gradual extension of the domestic cement industry price war in Q3 from East China, Q4 cement price profit declined month-on-month, but the company's gross profit per ton remained significantly ahead of the industry. We judge that it was mainly driven by overseas cement profits.

Aggregate/commercial mix sales remained high, and profits were stable. It is estimated that Q4 aggregate sales are about 43.21 million tons, +90.7% year-on-year, with a gross profit of about 18 yuan per ton of aggregate, which remains stable month-on-month. Q4's concrete sales volume is about 9.21 million tons, gross profit per ton is about 56 yuan, and gross profit per ton of concrete is picking up slightly month-on-month, leading the industry in terms of progress in the company's non-cement business.

Risk warning: The increase in raw fuel prices exceeded expectations, and major projects fell short of expectations.