Sinoma Cement plans to acquire overseas production lines. The target company's profit is 18 million US dollars, ROE is 31%, and PE is about 8X at the highest price. The company announced that Sinoma Cement (the company shares 40% of the company's shares) plans to establish a new UAE SPV in the UAE through its wholly-owned subsidiary Hong Kong SPV and introduce other investors to acquire 100% of the shares of Tunisian CJO and its GJO company, using the UAE SPV as the main body.

The target company CJO operates in the production of cement and aggregates in Tunisia. It has a long history of operation, stable operation, geographical location close to the port, and excellent location conditions. It is a mature integrated cement enterprise in the regional market. The share purchase price is based on $0.13 billion as consideration, and is determined by adjusting the difference in actual delivery of Nikkei's cash, debt, and working capital compared to the delivery account at the corresponding level on the valuation reference date. The maximum is no more than 0.145 billion US dollars. Based on the highest price, the purchase price corresponds to 23 year PE8X. The target company achieved revenue of 91 million US dollars in 2023, up 7% year on year, profit after tax of 18 million US dollars, up 50% year on year, corresponding net interest rate of 19.8%, and ROE of 30.5%. A 40% shareholding contributed approximately RMB 52.2 million to the investment income, accounting for 1.9% of Sinoma International's net profit in 2023.

Collaborate with the Group to speed up overseas and open up room for growth again. This acquisition is the first overseas cement production line layout after the company announced its participation in Sinoma Cement. The target company is operating well. After the merger and acquisition, with Sinoma International's technical reform and upgrading and excellent management and operation experience output, its profitability is expected to further improve. Looking forward to the future, China Building Materials Group has a clear strategy of “striving to rebuild a Chinese building materials overseas in about 10 years”. Sinoma Cement is the international business platform for basic building materials of China Building Materials Group, which will play an important role in it, and has great potential for growth. According to China Building Materials cement production capacity estimates, it is estimated that by 2025/2030, the production capacity of Zhongcai cement is expected to reach 0.03/0.1 billion tons, and Equity Holdings has a production capacity of 0.015/0.05 billion tons, which is expected to contribute 0.45/1.5 billion to the company's investment income, which has a significant driving effect on performance. Furthermore, according to the announcement, Sinoma International will be given priority under the same conditions for engineering operation and maintenance services involved in the overseas development of Sinoma Cement. Subsequent overseas investments by the Group are expected to bring a large number of new businesses to the company, and space for overseas growth will once again open up.

The announcement intends to increase the dividend ratio, which is highly attractive. The company announced that the profit distributed in cash for 2024 to 2026 was not less than 44%, 48.40%, and 53.24% of the distributable profit achieved in that year, respectively. If implemented successfully, according to the current profit forecast and the assumption of 10% surplus accumulation, the current dividend rate corresponding to the company's stock price is 5.3%/6.7%/8.3%, which is highly attractive.

Investment advice: We expect the company's net profit to be 3.4/3.9/4.4 billion yuan in 2024-2026, up 15.5%/15.1%/12.4% year-on-year, EPS 1.27/1.47/1.65 yuan respectively, and the current stock price corresponding to PE is 7.5/6.5/5.8 times, respectively, maintaining a “buy” rating.

Risk warning: risk of exchange loss, risk of overseas business operation, risk of operation and maintenance/equipment development falling short of expectations, risk of Sinoma Cement's overseas investment falling short of expectations, etc.