The company released its 2024 quarterly report: 2024Q1 achieved revenue of 7.084 billion yuan, +6.87% year on year; net profit to mother of 177 million yuan, -28.43% year over year; net profit after deducting non-return to mother 152 million yuan, or -35.09% year on year.
2024Q1's gross profit margin was 21.89%, +1.66 pct year on year, -5.82 pct month on month, net profit margin 4.12%, and -0.15 pct year on year.
Domestic cement business under pressure
2024Q1 is affected by excessive rainfall, weak real estate investment, and insufficient start of infrastructure projects, etc., and downstream demand is insufficient. According to data from the National Bureau of Statistics, 2024Q1's national cement production is 336.84 million tons, an absolute value of -16.28%. The contradiction between supply and demand has further intensified. The average price of 2024Q1 cement is 362 yuan/ton, -15.40% year on year; East China average price is 363 yuan/ton, -17.73%; central China average price is 340 yuan/ton, -20.57% year on year; and the average price in southwest China is 332 yuan/ton, -13.94% year on year. We expect the company's domestic cement business performance to be similar to the overall level of the industry.
Aggregates and overseas cement increased significantly in production capacity year over year. The incremental structural contribution and gross margin increased by 1.66 pct year on year. It is expected to benefit from the year-on-year decline in coal prices (2024Q1, the average closing price of Jingtang Port Coal (Q5500) was 907 yuan/ton, -20.03% year over year), as well as structural support for aggregates and overseas business.
First, 2024Q1's aggregate and overseas cement production capacity increased significantly year-on-year (a mechanical gravel project with an annual output of 30 million tons was put into operation in April 2023, and the acquisition of 64.66% of Oman's SAOG shares and 100% of Natal Portland Cement Company (Pty) Ltd.) were completed in June and December 2023, respectively. In addition to the commissioning of the second phase of the 4,500 tons/day production line of the Tanzanian Marvini Company in January 2024, adding a total of 8.54 million tons/year of overseas cement production capacity), overseas joint venture subsidiaries are expected to increase their share of revenue, boosting overall performance.
Foreign exchange gains and losses have a lot of impact
The 2024Q1 company's cost ratio for the period was 15.15%, +2.32pct. Among them, sales/management/R&D/finance expenses rates were 5.60%, 6.49%, 0.48%, and 2.57%, respectively, -0.01pct, +0.50pct, +0.30pct, and +1.53pct, respectively. The significant increase was financial expenses. 2024Q1 was 182 million yuan, or 68.57 million yuan in the same period last year, which is expected to be mainly affected by exchange gains and losses. Net operating cash flow at the end of the first quarter was 160 million yuan, -67.77% year-on-year, mainly due to an increase in working capital investment such as inventory.
Domestically, we look at supply-side structural optimization; overseas, we look at efficient production capacity on the domestic side. Short-term demand side requires policy drive and endogenous weakness. We believe that the cement industry focuses on the supply side. Against the backdrop of industry overflow, false peak production is the icing on the cake; removing production capacity is the only way to send fuel in the snow. In 2023, the cement industry's CR5 was 46% and CR10 was nearly 60%. Concentration is still low, and regional attributes are strong. The boom in 2023 is high and low. We believe this year is expected to rise from beginning to end. Mainly due to stronger expectations for carbon trading in the second half of the year, the gradual stabilization of superimposed real estate, and stabilizing industry demand expectations, and the relationship between supply and demand is expected to improve.
Overseas, the company's mid-term target is to reach 50 million tons of production capacity (annual production capacity of 20.91 million tons of effective overseas cement grinding in 2023). The company is good at selecting high-profit regions and creating unique competitiveness.
Investment advice: The company's forward-looking layout is leading the overseas, “cement +”, and low-carbon environmental protection industry. Facing the future slowdown in domestic real estate infrastructure demand, there are more choices and a firm path of transformation compared to peers. We expect net profit to be 28.17, 33.37, and 37.77 billion yuan respectively in 2024-2026. The PE corresponding to the current price is 11x, 9x, and 8x, maintaining the “recommended” rating.
Risk warning: Risk of infrastructure projects and real estate policies falling short of expectations, risk of price fluctuations on the cost side.