Incident: The company's Q1 revenue in 2024 was 7.084 billion yuan, up 6.87%; net profit to mother was 177 million yuan, down 28.43%; net profit after deduction was 152 million yuan, down 35.09%.
Domestic cement dominates profits, and the sharp drop in volume and price has put pressure on overall performance. On the demand side, due to factors such as real estate demand and the late start of construction after the holiday season this year, the volume price of cement in Hunan and Hubei provinces, which are the main areas of the company's cement production capacity, fell in Q1 in 2024. Specifically, in 2024, the price of cement in Hunan Province was 325 yuan/ton, down 24.01% year on year; cement price in Hubei Province was 351 yuan/ton, down 18.34% year on year. In terms of volume, 2024Q1 production in Hunan decreased by 7.46% year on year, while production in Hubei decreased by 19.18% year on year. In this context, the company's performance declined under pressure in 2024 Q1, and net profit to mother fell 28.43% year on year.
The overseas aggregate business boosted gross profit margins, and domestic sales declined, and cost amortization increased. 2024Q1's gross margin was 21.89%, up 1.66 pct; the net profit margin was 2.50% down by 1.24pct. The increase in gross margin and the decline in net interest rate was mainly due to an increase in the share of aggregate business and high-margin overseas business, increasing the overall gross profit margin, but the decline in sales in the domestic cement industry clearly led to an increase in cost amortization, which lowered the net profit margin. The 2024Q1 company's expense ratio for the period was 15.14% with an increase of 2.32pct; among them, the financial expense ratio was 2.57%, an increase of 1.54 pct. The increase in the financial expense ratio was clearly mainly due to the effects of increased interest expenses and depreciation of African currencies.
Accelerate integration and overseas deployment to hedge against declining domestic profits. By the end of 2023, the company's overseas cement grinding production capacity reached 20.91 million tons/year, and the planned clinker production capacity under construction reached 2.17 million tons, further strengthening the company's presence in Central Asia. While developing overseas markets, the company is vigorously developing the aggregate business. In 2024, the company plans to continue to invest 6.9 billion yuan in aggregate, concrete, and overseas cement production capacity and alternative fuel construction, and business competitiveness is expected to be further strengthened. Integration and the continuous strengthening of overseas layout are expected to hedge against the impact of declining domestic cement business profits due to declining demand.
Investment advice: We expect that in 2024-2026, the company will achieve net profit of 25.08/30.85/37.96 billion yuan, a year-on-year increase of -9.2%/23.0%/23.0%. The latest closing price corresponds to PE of 12/10/8 times, maintaining the “increase” rating.
Risk warning: Regional collaboration breaks down; industry competition increases risk; macroeconomic downside risk.