4Q23 profit decline increased year-on-year, and dividend payout ratio increased significantly
Shangfeng Cement achieved net profit attributable to the parent company of 744 million yuan in 2023, or -21.6% year-on-year. Among them, 4Q23 was attributable to the parent company's net profit of 43.75 million yuan, or -57.4% year on year. The decline was higher than 9M23 (-17.2% year over year), mainly due to: 1) the poor peak season for 4Q23 cement prices and the increase in the year-on-year decline in cement prices; and 2) fair value change losses and impairment provisions increased year on year. Despite profit pressure, the 2023 dividend payout rate was 51.4%, up 16.1pct from 2022. We predict that the company's 2024/2025/2026 EPS will be 0.63/0.68/0.74 yuan (previous value: 1.63/1.66/- yuan), with a target price of 9.36 yuan (previous value: 10.75 yuan), based on 1.0x2024 P/B (2024BVPS: 9.36 yuan), which is one standard deviation lower than the average P/B since 2016, to reflect that the industry's supply and demand are still under pressure. A healthy balance sheet helps the company to better focus on core strategies and cross the industry cycle. Maintain “buy-in.”
The decline in cement prices dragged down the profit contraction of the main business. The main cement business achieved gross profit of 1.30 billion yuan in 2023, or -24.5% year-on-year, which is the main reason for the year-on-year decline in the company's profit in 2023. The cement business showed impressive growth and cost reduction. Among them, cement and clinker sales increased +11.0% year over year to 21.45 million tons, and the unit cost was -31 yuan/ton (-14.1%) to 188 yuan/ton year on year, but it is still difficult to offset the impact of average sales prices. The average sales price of the company's cement and clinker was -59 yuan/ton (-19.3%) to 249 yuan/ton, and gross profit per ton was 29 yuan/ton (-32.0%) year-on-year to 60 yuan/ton.
There are still challenges in the supply and demand relationship in the industry, and it may be difficult to repair profits overnight. Since the 2024 Spring Festival, the overall recovery in cement demand has been slower than in previous years, and the supply and demand relationship in the industry is still under pressure.
In April, East China and some provinces in central China plan to increase production at false peaks and push cement prices back to 20-30 yuan/ton in the Yangtze River Basin. However, due to the still weak supply and demand relationship, the implementation of price restoration was not smooth. We expect that overall cement prices may still be bottoming out in 2024, and it may take longer to repair the company's main business profits.
The balance sheet remains strong, focusing on “one main and two wings”, waiting for demand to stabilize at the end of 2023, the company's cash hand of 4.03 billion yuan, financial assets such as equity investments and bank financial management at fair value, 2.16 billion yuan, and interest-bearing liabilities of 4.06 billion yuan. We believe this will help the company continue to focus on the “one main and two wings” development strategy, optimize the main business product structure and resource facilities, collaboratively develop the industrial chain extension wing and the new economic investment wing, maintain stability in the midst of market uncertainty, and lay a solid foundation for future growth.
Risk warning: Real estate sales are recovering slower than expected, and industry competition is weaker than expected.