Incident: The company released its 2024 quarterly report. In the first quarter of 2024, the company achieved revenue of about 21.328 billion yuan, a year-on-year decrease of 32.08%; net profit attributable to the parent company was 1.502 billion yuan, a year-on-year decrease of 41.14%.
Sluggish demand in the industry led to a decline in revenue and profit in the first quarter, and an increase in expense ratios. In the first quarter, due to the continued slump in new domestic real estate construction and chemical debt in some regions, domestic demand for cement downstream was weak. The country's cement production was 0.337 billion tons, down 11.8% year on year.
The growing contradiction between supply and demand intensified market competition, and cement prices did not experience a seasonal rebound in March. According to digital cement network data, the national average reference price for PO42.5 bulk cement in the first quarter was 363 yuan/ton, down 66 yuan/ton year on year, leading to a year-on-year decline in company accounts receivable in the first quarter. In terms of profitability, the gross profit margin for the first quarter was 17.75%, up 1.25 percentage points from the previous year. We judge that the increase in apparent gross margin was mainly due to the decline in the share of low-margin trading businesses. In addition, the company's expense ratio for the first quarter was 9.36%, up 2.26 percentage points from the previous year. Among them, sales, management, R&D, and finance expenses rates changed by +0.87, +1.62, +0.06, and -0.29 percentage points respectively; the net cash flow from the company's operating activities in the first quarter was 0.16 billion yuan, a sharp drop of 94.87% year on year, mainly due to the decline in operating income and profit.
The price of cement showed no decline in the off-season, and there was a sufficient margin of safety under the DCF valuation method. Recently, profit pressure in the cement industry has increased, and the trend of “competition” has reappeared. Prices are beginning to show a trend not weak in the off-season, making the market's judgment on the bottom profit center of the industry gradually clear. According to our previous in-depth report estimates, under the assumption that the entire industry continues to have a complete competitive pattern (similar to 2015), the intrinsic value of the Conch DCF valuation method is about 158.6 billion yuan, which is significantly higher than the current market value. We believe that the current market offers discounts mainly because the company maintains a large amount of cash on hand over a long period of time based on strategic considerations (monetary capital of about 66.3 billion yuan as of Q1), but has not carried out mergers and acquisitions or cash dividends, and the return on capital is low. We judge that the current implied dividend rate of Conch Cement is close to 4%. In the context of the market value assessment of central state-owned enterprises, the probability of cash dividends in hand may be revised, and the company's reasonable market value is expected to approach DCF pricing. We believe that under lower price expectations, Conch Cement is equivalent to dividend stocks combined with bullish price options, and has allocation value.
Profit forecast and valuation: Considering that the real estate and infrastructure sentiment is lower than our previous expectations, we lowered our 2024-2025 net profit forecast to 8.376 and 9.292 billion yuan (originally 9.94 and 12.009 billion yuan), and added the 2026 profit forecast of 10.327 billion yuan, corresponding to the stock price PE on July 10 to 16X, 14X, and 13X respectively. Maintain an “Overweight” rating.
Risk warning: macroeconomic recovery falls short of expectations, non-cement business progress falls short of expectations, raw material prices fluctuate