Compound performance forecast, reversal of losses in 4Q23
Jinyu Group's net profit attributable to the parent company in 2023 was 25.26 million yuan, -98% year over year, in line with the performance forecast guide range (20 million yuan to 150 million yuan); 4Q23 achieved net profit attributable to the parent company of 14.65 million yuan, turning losses into profits from year to month; if asset impairment losses and fair value changes were deducted, core net profit in 2023 was -56% YoY to 8.4 billion yuan, and 4Q23 core net profit changed to 1.12 billion yuan month-on-month. Some real estate projects with high gross margins confirmed revenue in 4Q23, which was the main reason for the company's profit improvement during the quarter. We reduced the 2024/2025 EPS by 63.5%/72.7% to 0.06/0.06 yuan, respectively, to reflect ongoing market challenges in the cement and real estate development business. EPS is predicted to be 0.06 yuan in 2026. The target price of Jinyu Group-A was reduced by 11.0% to $3.22, and the target price of Jinyu Group-H was reduced by 24.0% to HK$1.99, based on 0.55x/0.31x2024 P/B (BVPS: $5.85), respectively, in line with the company's average P/B since 2017. Maintain “buy-in.”
The expansion of green building materials has achieved remarkable results in reducing costs, but under market challenges, the green building materials sector achieved total profit of 1.42 billion yuan (2022:2.66 billion yuan) in 2023, and the average sales price of cement clinker was -82 yuan/ton (-24.1%) year on year to 258 yuan/ton, which is the main reason for the sector's change from profit to loss. Under pressure from market supply and demand, the company's cement business has performed well in reducing costs and expanding share. Among them, the unit production cost of cement clinker was -37 yuan/ton (-13.6%) to 235 yuan/ton, and sales volume was +7.3% year-on-year to 93.24 million tons (-0.7% of the country's cement production during the same period), but this was not enough to offset the impact of falling cement prices. Commercial mixed sales volume was +16.4% to 13.87 million square meters, and the unit production cost was -14.9% to 304 yuan/square meter. Due to the relatively moderate decline in average sales price (-10.2% to 349 yuan/square meter), the profit level of the commercial mixed business recovered moderately from year to year.
The real estate investment business grew steadily, but the recovery of the development business may still have twists and turns. The real estate development and investment operation sector achieved a total profit of 2.05 billion yuan in 2023, +27.2% of housing. If impairment provisions and fair value changes are deducted, the sector's profit before tax was +6.9% year-on-year to 2.48 billion yuan. Investment and operating income were +15.7% YoY to $3.45 billion, gross margin -4.6pct to 55.1%, and gross profit +6.7% YoY to $1.90 billion. Development business revenue was 25.2 billion yuan, +10.4% year over year, and gross margin -2.0pct to 14.8% year over year. The unique advantage of tier-1 and 2 linkage is the main reason why the company's housing development business can still maintain a relatively stable profit margin. The company's contract revenue for development business in 2023 was -28.0% YoY to RMB23.3 billion, and the balance of housing payments to be confirmed was -20.8% YoY to RMB22.8 billion. Considering the delay in revenue recognition, we anticipate that the real estate development business's profit recovery in 2024 may still have its ups and downs.
Risk warning: The competition ecosystem in the cement industry is weaker than expected, and real estate sales are steadily slower than expected.