Incident: The company disclosed its 2024 quarterly report. Q1 achieved operating revenue/net profit attributable to mother/ net profit after deduction of 7.084 billion yuan/177 million yuan/152 million yuan, respectively, +6.9%/-28.4%/-35.1% year-on-year, respectively.

Revenue bucked the trend and continued to grow, which is expected to be mainly driven by aggregates and concrete. (1) 2024Q1 revenue was +6.9% year-on-year, and the growth rate was significantly higher than the 11.8% year-on-year decline in national cement production in the first quarter. The company's performance is clearly superior to the industry. It is expected to mainly benefit from non-cement businesses such as aggregates, concrete, etc., and the increase in overseas mergers and acquisitions; (2) 2024Q1 achieved a gross profit margin of 21.9%, an increase of 1.7 pct year-on-year, which is mainly due to the increase in the share of high-margin overseas cement and domestic aggregate revenue, which is mainly due to the increase in the share of high-margin overseas cement and domestic aggregate revenue, which is mainly due to a decline in domestic cement demand that exceeded expectations and intensified the competitive price ring in the market. This is due to the decline compared to the decline.

Expenses rose slightly during this period, and profit levels bottomed out due to domestic cement. (1) The cost rate during the 2024Q1 period was 15.1%, +2.3 pct year on year, of which the sales/management/R&D/finance expense ratio was 5.6%/6.5%/0.5%/1.5%, which was flat year on year/+0.5/+1.5pct, respectively. The increase in financial expenses was mainly due to the year-on-year increase in interest-bearing debt; (2) the 2024Q1 net sales rate/net return to mother interest rate was 4.1%/2.5%, down 0.1/1.2 pct year on year, down 6.2/6.7 pct from 2023Q4 due to domestic cement The profit impact is still at a historically low level. The increase in minority shareholders' profit and loss ratio is expected to be mainly due to the commencement of production of aggregate companies and the acquisition of minority shares in Oman Cement Company.

Capital expenditure continues to be tightened, and the balance ratio remains stable. (1) 2024Q1 achieved a net cash flow of 107 million yuan from operating activities, -67.8% year over year, mainly affected by increased working capital investment such as inventory; (2) 2024Q1 paid 569 million yuan in cash for the purchase and construction of fixed assets, intangible assets and other long-term assets, reflecting the active tightening of the industry's capital expenditure during the downturn; (3) As of the end of the first quarter, the company's interest-bearing debt was 22.136 billion yuan, up 3.9% from 2023Q4, and the balance ratio was 51.8% from 2023Q4, up slightly from 2023Q4. 0.2pct.

Supply and demand in the industry still need to be rebalanced, the boom continues to bottom out, the company's integration strategy continues to strengthen comprehensive competitiveness, and integration+overseas layout continues to contribute more and more. (1) Demand during the peak season in the first half of the year was still weak year on year. We still need to observe the release of physical demand in the future. Fiscal instruments and quasi-fiscal instruments are expected to gain further strength. The growth rate of infrastructure investment is expected to remain high under fiscal conditions, but it still needs to be further transmitted to physical demand. In the context of insufficient demand, industry inventory control relies on false peak shutdowns, but under the influence of cross-regional flows and corporate market strategies, industry competition will be repeated, and the industry sentiment will continue to fluctuate at a low level, but it will also bring opportunities for further market integration. (2) As the integrated strategy continues to advance, the company's aggregate and concrete business volume continues to expand steadily. Overseas grinding capacity increased by 8.54 million tons/year to reach 20.91 million tons/year in 2023. Integration and overseas layout are expected to continue to contribute to the increase in performance.

Profit forecast and investment rating: Supply and demand in the cement industry still need to be rebalanced, the economy continues to bottom out, corporate integration and green and low-carbon strategies continue to strengthen the competitiveness of the main business, and capital expenditure supports integration+steady overseas expansion, which is expected to continue to contribute new growth points to the company. We maintain the 2024-2026 net profit forecast of 2,545/32.17/3,581 billion yuan. The closing price on April 29 corresponds to a price-earnings ratio of 11.7/9.3/8.3 times, maintaining the “increase” rating.

Risk warning: cement demand recovery falls short of expectations; non-cement+ overseas business expansion falls short of expectations; real estate demand exceeds expectations; risk of increased market competition.