Source: Finance Association

Hong Kong stocks at the end of the 9th$CHINA TIANRUI (01252.HK)$It plummeted 99.04% in the last 15 minutes before the market closed, and the total market value evaporated from over HK$14 billion to only HK$140 million left. Even when placed in Hong Kong stocks that are full of sharp rises and falls, it is still worth taking note of.

It is not unusual for Hong Kong stocks to plummet. For example, there are 4 today, including$HAOSEN FINTECH (03848.HK)$At the end of the session, there was a sharp drop of 90.96%, closing at 0.53 yuan, with a turnover of 931,000 shares and a turnover of 673,300 yuan;$SANERGY GROUP (02459.HK)$The closing price fell 49.88% to close at 2.1 yuan, with a turnover of 966,000 shares and a turnover of 2.741,800 yuan.

However, volume collapsed at the end of the session, falling from a minimum of HK$5 to HK$0.035, closing at HK$0.048, and the volume surged to 281 million shares. Turnover also soared from HK$100,000 to HK$24.3816 million. Only China Tianrui Cement had a market value of 10 billion dollars.

What does this drop mean? A simple comparison is that it costs HK$48 to buy first-hand China Tianrui cement at the current price, and the handling fee for Hong Kong stocks is even higher than the first-hand price. In addition, some netizens said that if someone buys 1 million Hong Kong dollars of China Tianrui Cement after a lunch break, the market value will be only 9,600 Hong Kong dollars left after the market closes, and the level of stimulus is comparable to that of the coin industry.

The entire market is exploring the reason for the sharp decline of this 10 billion cement company at the end of the session. In addition to the more common “loss of performance” and “the claim that real estate is dragging down the cement industry,” some industry insiders also said that the Hong Kong stock cement and building materials industry is performing steadily today, and even many companies have achieved impressive gains. Tianrui Cement's decline is too large and there is a possibility that stock pledges will be cut off.

According to the latest news, Tianrui Group office staff responded to media claims that it was unclear why the stock price plummeted, and that the company's production and operation were normal.

Tianrui Cement ranks among the country's key supporting cement enterprises

Why did the collapse of Tianrui Cement in China cause such a storm of public opinion? Perhaps it has something to do with the company's positive image over the years.

According to public information, Tianrui Cement belongs to Tianrui Group, one of China's top 500 enterprises. The group was founded in 2000 and is mainly engaged in the mining and utilization of limestone and the production and sale of building materials products such as clinker, cement, and construction aggregates. It is a leading clinker cement manufacturer in Henan Province and Liaoning Province, and is one of the 12 major national cement enterprises supported by the state.

Tianrui Cement was listed on the Hong Kong Main Board on December 23, 2011. The stock price rose all the way from around 2 yuan in 2011 to a high of 8.89 yuan in 2020, and ranked 7th in the overall strength ranking of listed Chinese cement companies in 2021.

The market is full of speculations about the reason for Tianrui Cement's sharp decline, and there are widespread claims that the loss in performance combined with the slump in the cement industry has broken through room for stock price imagination. Recently, on April 2, Tianrui Cement announced its annual results for the year ended December 31, 2023.

Specifically, in 2023, Tianrui Cement's revenue was RMB 7.889 billion, a year-on-year decrease of 28.64%; the company's owners should have accounted for a loss of 634 million yuan, while profit for the same period last year was 449 million yuan, which turned profit into loss over the previous year, with a loss of 0.22 yuan per share. Gross profit was approximately $1,629 million, a decrease of 1,085 billion yuan or 40.0% from about 2,714 billion yuan in 2022. The gross margin fell from about 24.5% in 2022 to about 20.7% in 2023. At the same time, the annual report mentioned that the decline in gross margin was mainly due to the decline in cement prices in 2023 greater than the reduction in the cost per ton of cement.

In terms of capital distribution, according to Futu Securities data, as of 15:59 yesterday, Tianrui Cement had a net outflow of HK$13.146,700 and a net inflow of HK$669.96. Today, in the ranking of net buying and net selling brokers, Futu Securities ranked first in net purchases, reaching 22.777 million shares. Zhongwei Securities ranked first in net sales, selling 2.046 million shares.

The cement industry's losses or phased expansion

The reason behind Tianrui Cement's profit to loss is the general downturn in the cement industry.

Recently, the Huatai Securities Research Report mentioned that due to a lower price starting point before the Spring Festival and price recovery after the holiday that was slower than in previous years, it is expected that most cement companies' 1Q24 profits will decline the same or both month-on-month, and the industry's losses may expand.

According to the research report, in 2023, China's cement production was -0.7% of the same caliber (-4.5% of the full caliber ratio), the capacity utilization rate was 59% (2022:66%), and the total profit of the entire industry was -53%. It is expected that the overall supply and demand relationship in the cement industry will remain under pressure in 2024, and the profitability of the domestic market may still be bottoming out. Improving the competitiveness of the main business and speeding up the cultivation of new growth poles may still be a priority. Due to a lower price starting point before the Spring Festival and slower price recovery after the holiday season than in previous years, the bank expects most cement companies' profits to decline the same or month-on-month in 1Q24, and the industry's losses may expand.

Huatai also said that since the Spring Festival this year, the overall recovery in cement demand has been slower than in previous years. As of the 7th week after the Spring Festival, the national average cement shipment rate was 47.6%, 15.6% lower than the same period in the 2023 lunar calendar. Affected by this, the price performance after the holiday was weaker than the same period in the 2023 lunar calendar. The average price of cement in the 7th week decreased by 2 yuan/ton compared to the Spring Festival period (an increase of 16 yuan/ton in 2023). Furthermore, the recovery in real estate sales was slower than expected, and production execution was weaker than expected.

Tianrui Cement has multiple share mortgages

In addition, Tianrui Cement has recently issued a number of stock mortgages.

China Tianrui Cement announced in January that on January 18 this year, the fixed-term loan financing of RMB 173 million had already been settled, and the relevant controlling shareholder Yu Kuo pledged 160 million shares as collateral for the loan had been lifted. On the same day, the group was granted a maximum of about 166 million yuan from the lender under another loan financing for a period of 12 months. Yu Kuo secured the loan with 97 million shares to the lender. Mortgage shares account for approximately 3.3% of the shares.

According to Tianrui Cement, according to the loan terms, Tianrui Group must hold more than 50% of the shares as the loan guarantor, and in the event of default, the lender can demand immediate repayment of the loan. Yu Kuo is wholly owned by Tianrui Group, while Tianrui Group is owned by non-executive director Li Liufa and his spouse, executive director Li Fengyi. They hold 69.58% of the shares.

In fact, as early as September 18 of last year, Tianrui Cement announced a share mortgage loan. At the time, the maximum amount awarded by Tianrui Cement was RMB 80 million. An independent third-party lender provided loan financing for a period of 12 months from withdrawal to Tianrui Group Zhengzhou Cement Co., Ltd. (as a borrower). The loan was also secured by Yukuo Co., Ltd., the controlling shareholder of the company using 45 million common shares of the company's issued share capital as a loan guarantee. The collateral shares accounted for about 1.53% of the total number of shares issued by the company on the date of this announcement.

It is worth noting that the collateral price of the above two share mortgages is around RMB 1.7 per share, which is far different from the current price of Tianrui Cement's HK$0.045. Industry insiders said that when an equity is pledged, it is generally discounted compared to the stock price at the time, but when the stock falls sharply, it is fine if the increase can be made up in the short term; if the stock price cannot rise for a long time, new collateral or additional money may be required according to the agreement between the pledging parties. If the majority shareholder is really unable to supplement the pledge or make up the money, then the pledged shares will be sold, and the difference will need to be repaid according to the circumstances.

editor/tolk