Key points of investment
The world's largest cement system service provider, China Building Materials Group's international “Pioneer” company is the world's largest integrated service provider for cement technology and equipment engineering systems. The main cement technology, equipment and engineering industry has maintained the world's top share in the global market for 16 consecutive years. As an important platform for the development of the engineering technology service sector of China Building Materials Group Co., Ltd., the company is the “pioneer” of the internationalization of China Building Materials Group. The company has continuously improved its various business layouts through acquisitions and restructuring, forming three major business segments: engineering technology services, high-end equipment manufacturing, and production and operation services. The business revenue in 2023 accounted for 58.2%, 15.7%, and 23.1% respectively. The company strives to achieve a three-legged business pattern of engineering, equipment, and operation by the end of the 14th Five-Year Plan period. In 2023, the company's revenue and net profit to mother were 45.8 billion yuan and 2.9 billion yuan respectively, up 6.9% and 14.7% year-on-year respectively; the amount of newly signed contracts was 61.6 billion yuan, +18% over the same period last year, accounting for 54% overseas.
Regional opportunities still exist. Seizing the incremental market of cement engineering technology services in countries along the “Belt and Road” is the company's core business. The business model is mainly EPC general contracting services, mainly involving cement, mining, green and low-carbon technology R&D and industrialization applications. Production growth in the global cement market slowed in 2023, but the scale remained stable. Looking ahead to 2024, global (excluding China) demand is expected to grow by 2-3%, driven by the Indian, Middle Eastern and African markets, and regional structural opportunities still exist. Looking at the subregion, the cement business in some developed countries is a stock market. Influenced by decarbonization policies, technological transformation has become the company's main driving force; some developing countries are incremental markets. Among them, the “Belt and Road” regions where the company's core operations include markets such as Africa, the Middle East, and Southeast Asia. Along with urbanization development and population growth dividends, cement demand still has a lot of room for growth, and I am optimistic about the potential for steady growth in overseas engineering business.
The policy is “three orders and five applications”, and there is plenty of room for technical reform of old domestic lines
Due to the sharp contraction in domestic cement demand, opportunities to add a complete cement EPC line are limited, but under the combined effects of “dual carbon” and “double control” policies, there is an urgent need for industrial transformation and upgrading. From a national perspective, promoting cleaner production is a general trend. It is a way to eliminate backward production capacity, and helps the industry to clear out backward production capacity. From an enterprise perspective, improving energy efficiency is the best way to maintain development and cope with current policy and financial pressure, thus spawning demand for technical reform and volume reduction and replacement of old production lines. Among them, the technical reform method for old production lines has low individual investment and a short construction cycle, and is a quick and practical way to achieve clean production. According to our estimates, the domestic technical reform space can reach about 11.6 billion yuan/year from 2023-2025, and the market space is still broad.
The main cement business drives the growth of equipment+ operation and maintenance, and the group collaborated to add growth impetus 1) Equipment business: In 2023, the company reorganized fertilizer and built the largest and most comprehensive equipment business platform in the cement field. With the transformation of the cement industry to “high-end, intelligent and green”, cement equipment is still in great demand. According to the company's 2023 equipment business revenue estimates, cement equipment's global market share is about 20%. Compared with the cement EPC business's global market share of 65%, the equipment business still has a lot of room for improvement. 2) Cement operation and maintenance: The cement operation and maintenance market focuses on overseas. Due to lack of advanced management experience and skilled workers, demand for cement production line operation and maintenance services will continue to expand in some incremental cement markets. In 2023, the company's cement operation and maintenance business market share will be about 10%. If we target the company's global cement engineering market share, there is great potential for development. 3) Mine operation and maintenance:
The mine operation and maintenance business focuses on the domestic market. Under policy guidance, mine management is developing in the professional direction of standardization and greening. In 2023, the company's mine operation and maintenance business market share was about 23%. If the domestic cement engineering market share is measured, there is plenty of room for improvement. 4) Sinoma Cement: Through a capital increase, the company holds 40% of Sinoma Cement's shares, uses Group resources and Tianshan Co., Ltd. to build a joint overseas community for basic building materials, develop foreign building materials business and obtain investment benefits. It is optimistic that the company will continue to benefit from group resource collaboration and further achieve epitaxial growth.
Profit forecasting and valuation
The company relies on the strong China Building Materials Group. With its high market share and strong professional capabilities, the company can seize regional development opportunities in an environment of global cement market differentiation and achieve steady growth in performance. We believe that the company has great potential for growth in cement engineering services in countries along the “Belt and Road”. We are optimistic about the growth space for equipment and operation and maintenance business with the collaboration of the main cement industry. At the same time, we are optimistic that the company will reach a three-legged business pattern at the end of the 14th Five-Year Plan to achieve high-quality growth. Taking into account the company's business layout and development potential, we expect the company's net profit to be 3.4 billion yuan, 4 billion yuan and 4.6 billion yuan respectively in 2024, and an EPS of 1.29 yuan/share in 2024. First coverage, giving a “buy” rating.
Risk warning
Competition in overseas markets intensifies; domestic demand for building materials and machinery has declined; risk of exchange rate fluctuations.