Earnings ahead of guidance; attractive dividend yield
CNBM's net profit fell 52% YoY to RMB3.86bn in 2023, well above its guidance but in line with our forecast. We expect its earnings to grow 19% YoY in 2024 mainly on the recovery of earnings at its basic building material operations. We cut our 2024/25 earnings forecasts by 21%/23%. Despite this, we reiterate our BUY call with target price raised to HK$5.05 as its shares offer highly attractive dividend yield of 9.2- 12.7% for 2023-25E.
Key Factors for Rating
The company's earnings were 36% above its guidance. We believe the company was overly conservative and booked some last minute other income. Nevertheless, it was 1% below our forecast.
The sharp fall in earnings was mainly due to the 38% YoY fall in the total operating profit of cement and concrete segments on lower sales volume and unit gross profit. The operating profit of the new material segment also fell 14% YoY as the ASPs of glass fibre, lithium battery separator and carbon fibre dropped significantly.
Despite the sharp fall in earnings, the company raised its dividend payout ratio from 39% in 2022 to 50% in 2023. Its shares now offer attractive 2023 dividend yield of 9.2%, the highest among its major peers.
We expect the company's profit to surge 19% YoY in 2024. The key driver is the 18% growth in the total operating profit of the cement and concrete segments on the estimated improvement in unit gross profit for cement and clinker from RMB33/tonne in 2023 to RMB39/tonne in 2024 upon the decline in coal prices. We also expect the operating profit of the new material segment to recover 4% YoY, including the contribution from the newly acquired Carpoly Chemical. The engineering segment should continue to show steady growth.
Key Risks for Rating
Weaker-than-expected recovery of basic building material operations.
Lower-than-expected prices of new material products.
Valuation
We set our target price at the average of 6x current year P/E and 0.49x current year P/B (lowered from 0.52x based on P/B vs ROE regression of its peers). As we roll over the base year from 2023 to 2024, we raise our target price from HK$4.92 to HK$5.05 despite the cuts in our earnings forecasts.
