Incident: Huaxin Cement released its 2023 annual report. In 2023, the company achieved revenue/net profit/net profit deducted from mother at 338/28/2.3 billion yuan, +11%/+2%/-10% compared with the same period last year. In 23Q4, the company achieved revenue/net profit/net profit deducted from non-net profit of 96/889/50 billion yuan, +11%/+11% year-on-year. The company plans to pay a cash dividend of 1.1 billion yuan, with a dividend rate of 40%, a slight increase over the previous year, corresponding to a dividend rate of about 4%.
Comment:
Cement business: Sales volume was +6% compared to the same period, and the increase in gross margin reflected the ability to control costs.
In 2023, the company's cement business achieved revenue of 18.3 billion yuan, mainly affected by the decline in cement prices. In 2023, the average price per ton of the company's cement products was 315 yuan/ton, a year-on-year decrease of -8% (year-on-year decrease of 29 yuan/ton); in terms of sales, the company's cement business achieved sales volume of 58.18 million tons, +6% year-on-year.
In terms of cost, the company's operating cost per ton of cement in 2023 was 231 yuan/ton, -9% (year-on-year decrease of 24 yuan/ton), mainly benefiting from the reduction in coal costs; in the cost structure, raw materials/fuel and power/depreciation costs/other ton costs were +4/-21/-4/-3 yuan/ton, respectively. In terms of profitability, the gross profit of the cement business in 2023 was about 84 yuan/ton, -5 yuan/ton year on year, mainly driven by price decline; gross margin was about 26.8%, +0.8 pct year on year.
According to the CementNet Top 100 Clinker Production Capacity list, by the end of 2023, the company's total clinker production capacity ranked fourth in the country, its clinker production capacity in China ranked sixth in the country, and the overseas clinker production capacity ranked second in the country.
Revenue and sales of concrete aggregates increased significantly, and the annual production capacity of the overseas business was +69% year-on-year.
In 2023, the company's concrete business achieved revenue of 7.65 billion yuan, +49% year over year; sales volume was 27.27 million square meters, with an average price of 281 yuan/square meter, -10%; gross margin was about 15.5%, -0.3 pct year on year; and annual concrete production capacity was 122 million square meters, +77% year over year.
In 2023, the company's aggregate business achieved revenue of 5.36 billion yuan, +75% year over year; of these, sales volume was 131 million tons, with an average price of 41 yuan/ton, -12%; gross margin was about 45.9%, -9.4pcts year on year; annual aggregate production capacity was 277 million tons, +32% year over year.
In 2023, the company's overseas business achieved revenue of 5.49 billion yuan, +30% year-on-year; revenue accounted for about 16.3%, +2.4pcts year-on-year. In 2023, the company made a breakthrough in overseas business development, successfully completing the share acquisitions of the two companies and expanding its business into the Middle East and Southern Africa. In addition, the second phase of the 4,500 tons/day cement clinker production line project of the Tanzanian company was put into operation, adding a total production capacity of 8.54 million tons/year. By the end of 2023, the company's effective overseas cement grinding capacity had reached 20.91 million tons/year, +69% over the same period last year.
2024 operating target: Revenue targets close to double-digit growth.
In 2024, the company plans to sell about 63 million tons of cement and clinker (+1.8% year over year), sell 156 million tons of aggregate (+19% year over year), sell 30.52 million square meters of concrete (+12% year over year), and total environmental protection business disposal volume of 4.28 million tons (+22% year over year), and total revenue is expected to reach 37.1 billion yuan (+9.9% year over year). In 2024, the company plans to spend about 6.9 billion yuan in capital, focusing on aggregate, concrete, overseas cement production capacity and alternative fuel construction. In 2024, the company's total assets are expected to be around 73.7 billion yuan, and the balance ratio is expected to remain around 51%.
Profit forecast, valuation and rating: In 2023, demand in the cement industry declined slightly due to the contraction in real estate demand; in this context, Huaxin Cement achieved higher growth than the industry due to its competitive advantage and diversified business expansion.
Considering the phased pressure on the company's performance, we lowered the company's 2024-2025 net profit forecast to 2.8 billion yuan (33% reduction) and 3.2 billion yuan (38% reduction), respectively, and added the 2026 net profit forecast of 3.7 billion yuan. Considering that cement companies' profits are close to the bottom, we are still optimistic about investment opportunities where the bottom of cement stocks reverses, and maintain a “buy” rating for the company.
Risk warning: the risk that demand falls short of expectations, the risk that the industry's supply and demand pattern will deteriorate, the risk that the price of raw fuel materials will continue to rise sharply, uncertainty about overseas investment, and the risk of exchange gains and losses, etc.