1Q24 results largely in line with our expectations
China Resources Building Materials Technology Holdings announced its 1Q24 results: Revenue fell 5.6% YoY to Rmb4.79bn, and net profit attributable to shareholders was -Rmb28.9mn (vs. -Rmb30mn in 1Q23). The firm's 1Q24 results are largely in line with our expectations.
Sales volume of cement and clinker increased despite headwinds. In 1Q24, the firm's sales volume of cement and clinker rose 5.2% YoY to about 13.03mnt despite industry-wide demand decline (cement output in central and southern China fell 11.8% YoY). The firm focuses on operation in Guangdong, Guangxi and Fujian, and its cement sales volume in Guangdong and Fujian rose 9.1% and 5.1% YoY while that in Guangxi fell 0.2% YoY in 1Q24.
Fierce price competition weighed on prices and gross profit per tonne. In 1Q24, the ASP of cement and clinker fell by Rmb79 YoY to about Rmb244. The firm's cost per tonne fell Rmb72 YoY due to cost dilution caused by falling coal prices and rising sales volume, but its gross profit per tonne dropped by Rmb8 YoY to Rmb27 in 1Q24.
Production and sales volume of aggregate and concrete grew rapidly; earnings contribution of the businesses increased. The firm's sales volume of concrete and aggregate rose 50.2% and 169.5% YoY in 1Q24. Gross profit per cubic meter of concrete rose by Rmb7.5 YoY to Rmb46.1, and gross profit per tonneof aggregate fell by Rmb3.9 YoY to Rmb13.2 in 1Q24. The firm's blended gross margin rose 1.8ppt YoY to 13.8% in 1Q24 thanks to a higher proportion of aggregate and concrete businesses in earnings.
Expense ratio rose; expenses per tonne dropped YoY due to rising sales volume. In 1Q24, the firm's selling, G&A, and financial expense ratios rose 0.2ppt, 0.5ppt, and 0.3ppt YoY despite falling revenue. Due to rising sales volume of cement and clinker, we estimate that the firm's cement and clinker businesses-related expenses per tonne fell by Rmb2 YoY to Rmb52.7. Considering that part of the incremental expenses were generated by the aggregate business, we expect the firm to cut expenses per tonne of clinker more sharply.
Borrowing ratio increased from the end-2023 level. At end-1Q24, the firm's borrowing ratio rose about 2.4ppt YoY to 39.3%.
Trends to watch
Strengthening leading position in regional markets; aggregate business to grow rapidly. The firm has proposed a strategy of winning market share, avoiding breaking the bottom line, optimizing product structure, and improving market position. The focus is on cost reduction and core competitiveness improvement along the value chain. We expect the company to cement its leading position in southern China in 2024. The firm's aggregate business has entered a period of rapid growth thanks to capacity expansion and the completion of supporting infrastructure construction, and we expect earnings contribution of the business to increase. We also expect its aggregate ASP and gross profit per tonne to rebound in 2024 as production capacity in Guangdong (which has higher ASP) expands and the structure of its aggregate sales optimizes.
Financials and valuation
We keep our 2024 and 2025 attributable net profit forecasts at Rmb676mn and Rmb804mn. The stock is trading at 11.4x 2024e and 9.2x 2025e P/E. We maintain an OUTPERFORM rating and our TP of HK$1.93, implying 17.7x 2024e and 14.3x 2025e P/E, offering 55.6% upside.
Risks
Demand recovery disappoints; competition intensifies.