Established cement leaders have a diversified layout, and the industry bucked the trend during the downturn. The company has a history of over 100 years of development as an established cement manufacturing and sales enterprise. In 2023, it ranked fourth in the country with a total clinker production capacity of 76.576 million tons. Domestic cement production bases are distributed in 9 provinces and cities including Hubei, Hunan, Yunnan, Chongqing, Sichuan, Guizhou, Tibet, Guangdong and Henan. It has an advantageous position in central China and has become a major practitioner in the southwest region. The integrated layout and overseas development strategy helped the company gradually grow from a single domestic cement supplier to an international high-quality integrated building materials enterprise, and demonstrated strong operational resilience. The CAGR of the company's revenue/performance in 2012-2023 was 8.65%/9.48%, and the domestic cement industry was under severe pressure. The company still achieved positive year-on-year revenue/performance growth, yoy +10.79%/2.34%. Among them, the aggregate and concrete business revenue increased 75.01% and 49.08% year on year, and overseas business revenue increased 29.99% year on year.

Deepen high-margin aggregates to enhance the company's performance, and establish long-term profit support in overseas business.

In the past 20 years, through the implementation of an integrated development strategy, the company has successively increased the production and sales of commercial concrete, aggregate, and cement-based construction materials. The company lays out aggregate mining rights in central south and southwest China along the Yangtze River with Hubei as the core. Transportation costs have certain advantages, and the high-margin aggregate business has enhanced the company's performance. The company's aggregate business accounted for 15.89% of revenue in 2023, with a production capacity of 0.277 billion tons/year, ranking first in the country. The gross margin was 45.88%, far higher than the company's overall gross margin level (26.71%). At the same time, the company vigorously lays out overseas business, laying out cement business in 11 countries including Kyrgyzstan, Uzbekistan, Cambodia, South Africa, Mozambique and Oman through continuous mergers and acquisitions or investment in new construction, and has become a leader in the cement market in Central Asia. Overseas production capacity and revenue are high, and cement sales are high and profitable, driving the overall profit level. As the company's new merger and acquisition production line and new ignition production line are gradually put into operation, it is expected that it will continue to contribute to the company's performance and effectively hedge against the downward pressure on the domestic cement market.

Domestic cement supply-side trends have turned positive, price/profit restoration expectations are strong, and overseas infrastructure releases long-term demand. Currently, domestic demand for cement continues to decline. The infrastructure side may maintain steady single-digit growth in line with changes in the growth rate of traditional infrastructure investment. Some major infrastructure projects are expected to support the rapid growth of regional cement demand, but the real estate side is still a clear drag. In the medium to long term, it may decline to a steady level, leading to marginal improvements. On the supply side, from 2022, oversupply in the cement industry is the main pain point. Competition in the industry is greater than competition, price competition is fierce, cement prices continue to fall, and industry losses are serious. 2024Q2, the mentality of leading cement companies gradually changed, and the demand for profit increased. Sales strategies changed from market share priority to profit priority. Many companies control supply through erroneous production, and raise cement prices at the same time. The contradiction between supply and demand is expected to improve, and cement prices and profit can be expected to be repaired.

Global demand for cement may stabilize in the future, and demand for cement from overseas regions, such as the Middle East, India, and Africa, benefiting from local economies and infrastructure development, is expected to continue to be released.

Investment advice: The company's overall revenue for 2024-2026 is expected to be 35.033 billion yuan, 36.177 billion yuan, and 37.590 billion yuan, respectively, up 3.78%, 3.27% and 3.90% year on year; the company's net profit due to 2024 to 2026 is expected to be 2.794 billion yuan, 3.116 billion yuan and 3.467 billion yuan, respectively, up 1.15%, 11.54% and 11.25% year on year, corresponding to 2024- PE in 2026 was 9.8 times, 8.8 times, and 7.9 times, respectively, and 12 times PE was given in 2024, corresponding to a target price of 16.08 yuan.

Risk warning: macroeconomic fluctuations; downstream demand recovery falls short of expectations; overseas business expansion falls short of expectations; false peak production execution falls short of expectations; increased market competition; rising cost side prices; profit forecasts fall short of expectations.