The performance is basically in line with our expectations
The company announced 1Q24 results: revenue of 4.79 billion yuan, -5.6% year-on-year; net profit to mother of -0.28.9 million yuan, compared to -0.30 billion yuan for the same period in 1Q23. The company's 1Q24 performance was basically in line with our expectations.
Sales of cement clinker bucked the trend. 1Q24's total cement clinker sales volume was about 13.03 million tons, +5.2% year over year. Against the backdrop of overall declining demand in the 1Q industry (cement production in central and southern regions -11.8% YoY), the company's cement clinker sales bucked the trend. Looking at the subregions, the company focused on the two core business regions of Guangzhou and Fujian. Guangdong/Guangxi/Fujian cement sales were +9.1%/-0.2%/+5.1%, respectively.
Price competition is fierce, and prices and tons of gross profit are under pressure. The average price of 1Q24's cement clinker tons was about 244 yuan, -79 yuan year on year. Although the cost per ton was -72 yuan year over year due to falling coal prices and cost dilution due to higher sales volume, gross profit per ton was still -8 yuan to 27 yuan year over year.
Production and sales in the aggregate and concrete business grew rapidly, and the contribution ratio to performance increased. 1Q24's concrete/aggregate sales volume was +50.2%/+169.5%, respectively, and sales increased rapidly. The gross profit for concrete was +7.5 yuan to 46.1 yuan, and the gross profit for a ton of aggregate was -3.9 yuan to 13.2 yuan year-on-year. Benefiting from the increase in the aggregate and concrete business performance contribution ratio, the 1Q24 company's comprehensive gross margin was about 13.8%, +1.8ppt compared to the same period last year.
The cost rate has increased, but thanks to increased sales volume, the cost per ton has decreased year over year. 1Q24 The company's sales/management/financial expense ratio was +0.2ppt/+0.3ppt, up against the backdrop of declining revenue, but thanks to increased cement clinker sales, we estimated that the company's full-caliber cement clinker tonne cost was about 52.7 yuan, or -2 yuan year over year. Considering that some of the incremental costs come from aggregates, etc., we estimate that the company's cement clinker tonnage savings may be even greater.
The borrowing rate has increased since the end of 2023. As of the end of 1Q24, the company disclosed a loan rate of about 39.3%, an increase of about 2.4ppt compared to the end of 2023.
Development trends
The leading position in the region was consolidated, and the aggregate business entered a period of rapid growth. The company proposed a market strategy of “seizing share, keeping the bottom line, improving structure, and improving position”, focusing on reducing costs and enhancing core competitiveness throughout the value chain. We expect the company to consolidate its leading position in South China by 2024. At the same time, with the completion of production capacity investment and supporting infrastructure construction, the company's aggregate business has entered a period of rapid growth, and we believe that its performance contribution is expected to increase; with the further release of production capacity at the higher average price of the base in Guangdong, the company's aggregate sales structure is expected to be optimized. We expect the average price of aggregates and gross profit per ton of the company to recover in 2024.
Profit forecasting and valuation
We keep the 2024/25E net profit of 676 million yuan/804 million yuan unchanged, and the current stock price corresponds to 2024/25E 11.4x/9.2x P/E. We maintain our outperforming industry rating and maintain a target price of HK$1.93, corresponding to 2024/25E 17.7x/14.3x P/E, implying an upward margin of 55.6%.
risks
The recovery in demand fell short of expectations, and price competition in the industry intensified.