2023 results fall short of our expectations
The company announced its 2023 results: revenue of 6.397 billion yuan, -10.3% year-on-year, and net profit to mother of 744 million yuan, -21.6% year-on-year. Among them, 4Q23 had revenue of 1,520 billion yuan, a year-on-year ratio of -22.9%, and net profit to mother of 43.75 million yuan, or -57.4% year-on-year. The company's 2023 performance fell short of our expectations, mainly due to a decline in profits by tons, impairment in the fourth quarter, and losses from changes in fair value exceeding our expectations.
Benefiting from the commissioning of new production lines, sales rebounded year on year. In 2023, the company sold about 21.45 million tons of cement clinker, +11% over the same period last year. We think it is mainly due to the increase in the production of the company's Duyun production line in Guizhou during the year.
The average price per ton and gross profit per ton are under pressure. Due to intense price competition in the industry, the average price of the company's cement clinker ton in 2023 was 249 yuan, -59 yuan (or -19%) year on year, and gross profit of 60 yuan per ton, -28 yuan year on year.
The benefits of the northwest region are improving, and the East China region is clearly under pressure. Affected by declining demand and increased market price competition, the company's revenue in East China in 2023 was 4.386 billion yuan, -19.3% year-on-year, gross profit margin 26.8%, year-on-year -8.93ppt. Meanwhile, the northwest region maintained good operating efficiency, with revenue of 1,283 billion yuan, +5.0% year over year, gross profit margin of 44.6%, and +11.45ppt year over year.
The fee rate has increased. In 2023, the company's sales/management/R&D/finance expenses rate was 2.2%/10.3%/2.3%/0.3%, respectively, which is basically the same as +0.3pp/+2.1pp/ -0.5ppt/compared to +0.3ppt/-0.5ppt.
Depreciation and changes in fair value drag down profits. In 2023, the company accrued a total of 67.01 million yuan in asset impairment losses and credit impairment losses, and the 4Q23 fair value change loss was about 42.98 million yuan, all of which increased significantly over the previous year, which dragged down 4Q23 profit performance.
Cash flow has remained steady, and dividend rates have increased dramatically. The company's net operating cash flow in 2023 was $1,117 billion, +9.53% year over year. Cash flow remained steady against the backdrop of declining profits. According to the company's 2023 profit distribution plan, the dividend rate increased sharply to 51.4%, an increase of about 16ppt over the previous year.
Development trends
Core market sentiment is expected to recover steadily. We believe that the company's overall demand trend in the East China market is still relatively steady. As the industry remains at the bottom of meager profits or even losses, companies' demand for growth is generally prominent. We believe that if the industry withstands the stress tests of the off-season, with capital in place and seasonal release of demand in the second half of the year, the company's core market has room for price increases and profit recovery.
Profit forecasting and valuation
Due to the reduction in the profit assumption by tons, we lowered 2024/25E net profit of 18.7%/15.0% to $740/840 million yuan. The current stock price corresponds to 2024/25E 9.4x/8.2x P/E. We maintained our outperforming industry rating and lowered our target price by 17.7% to 9.3 yuan, corresponding to 2024/25E 12.2x/10.7x P/E, implying an upward margin of 30.3%.
risks
Demand fell short of expectations, and price competition in the industry intensified.