Description of the event
The company's 2024 quarterly report: operating income was about 7.084 billion yuan, an increase of 6.87% year on year; attributable net profit was about 177 million yuan, a decrease of 28.43% year on year.
Incident comments
2024Q1: Demand is sluggish, and the company's market is no exception. Demand for cement in the 2024Q1 industry is sluggish, and real estate and infrastructure are weakening. In the first quarter of 2024, due to the small number of new real estate projects started and the suspension of major infrastructure projects in some regions, demand in the national cement market was sluggish. Cumulative cement production fell 11.8% year on year. Production was the second lowest since 2011, only higher than the same period in 2020. Looking at the company's core markets, looking at Hubei, Hunan, Yunnan and Guizhou, the year-on-year growth rates for 2024Q1 cement were -19%, -7%, -3%, and -14%, respectively. Based on this, we expect that the company's domestic cement production and sales volume will also decline by a certain margin in 24Q1. Furthermore, considering the sluggish demand, prices and gross profit are expected to drop to varying degrees.
However, we judge that the overseas and aggregate business is expected to grow to some extent. Overseas revenue was 5.49 billion yuan in 2023, an increase of about 30% over the previous year; in 2023, the company added a total production capacity of 8.54 million tons/year, which is expected to release further increases in 2024Q1. The same is true for aggregates. The volume of new production capacity is expected to provide an increase in the company's 24Q1 performance. Therefore, from an overall management perspective, we expect domestic cement to be the core drag, and overseas cement and aggregates will perform well.
Net profit increased slightly, but attributable net profit declined. Further, 2024Q1's sales, management, R&D, and financial expenses increased by 0.24 million yuan, 0.63, 0.22, and 113 million yuan respectively, for a total cost increase of 230 million yuan. It is estimated that it is mainly an increase in expenses due to new business and new market development. In addition, the company's 24Q1 net profit was 292 million yuan, a slight increase over the previous year, with minority shareholders' profit and loss of 115 million yuan, an increase of nearly 80 million yuan over the previous year. It is estimated that it was mainly affected by the equity ratio of overseas projects. In the end, net profit attributable to 24Q1 was 177 million yuan, a year-on-year decrease of 28.43%, or about 70 million yuan.
Overseas: The African market continues to expand. By the end of 2023, the company's effective overseas cement grinding capacity had reached 20.91 million tons/year. Currently, the company has locations in 11 countries including Tajikistan, Kyrgyzstan, Uzbekistan, Cambodia, Nepal, Tanzania, Zambia, Malawi, South Africa, Mozambique and Oman, and has become a leader in the cement market in Central Asia.
Strategic expansion is progressing steadily: 1) Continued overseas expansion, particularly strengthening the market layout in Africa. The boom in Africa is expected to drive a significant increase in the company's overall profit. 2) Aggregates continue to enter the harvest period, and it is expected that with the gradual improvement of resource facilities, there is still room for reduction in aggregate costs. 3) Domestic cement cost leading peer optimization. In 2023, 4.37 million tons of alternative fuel were used, an increase of 500,000 tons over the previous year; the Group's consolidated calorific value replacement rate reached 20%, an increase of 6 percentage points over 2022.
The expected 2024-2025 performance is 3 to 3.6 billion yuan, corresponding PE is 10 to 8 times, and the purchase rating.
Risk warning
1. Demand recovery falls short of expectations; 2. Aggregates, etc. are progressing slowly.