Investment returns and performance returns from old products will continue to be realized in 2024, and the company will accelerate its transformation to financial business. 1) The total investment income confirmed by the company under the Equity Law from Harmonious Jinhong and Harmonious Jinyu Investment Portfolios was 0.36 billion in 2023, and 0.66 billion in 2022, a year-on-year decrease of 45.5%. Based on the fair value of the investment portfolio as of the end of 2023, the company generated a total investment income of about 1.631 billion yuan, and confirmed excess performance compensation of 0.133 billion yuan for the first time. Based on the calculation of the distribution of income between the two funds at the end of their longest term of existence, the company expects to receive over RMB 1.1 billion in excess performance compensation.

Due to the possibility of downward fluctuations in the fair value of the two managed funds, the excess performance compensation was not confirmed in the company's 2023 financial report in accordance with relevant accounting standards. With the steady growth in the performance of invested projects and the increase in withdrawn projects, this portion of the performance compensation is expected to continue to be achieved in 2024 and beyond. 2) The total revenue from the private equity management business in 2023 was 0.466 billion yuan, up 70.5% year on year; accounting for 38.2% of total business revenue, reaching a record high (22.4% of total business revenue in 2022). In the future, due to environmental management controls, the revenue and profits of the cement, aggregate and other building materials businesses will be further compressed, and the company will further accelerate the development of private equity investment business.

The completion of overfunding of new products will further expand the scale of management, and the company's own investment may be under pressure. 1) The company's management fee revenue in 2023 increased 21.59% year-on-year, mainly due to Harmonious Green Industry Fund raising and expanding the management scale. By the end of 23, the total amount pledged by the partnership was RMB 8.65 billion, exceeding the original target total of 7.5 billion yuan. As of August 2024, the Harmonious Green Industry Fund has raised a total amount of 10.5 billion yuan. The management scale has been further expanded, and management fees may increase steadily in the future. 2) Affected by capital market fluctuations, the company's total investment income for the first quarter of 2024 was -0.098 billion yuan and net profit was 0.008 billion yuan. The half-year performance forecast shows that net profit was about 0.1 billion yuan, which is far less than the same period last year, so the company's overall investment income in 2024 is expected to drop significantly. 3) As of July 2024, the company has repurchased 6.22 million shares through centralized bidding transactions through special securities accounts, accounting for 0.81% of the company's total share capital. The repurchases demonstrate the company's confidence in stock prices, and will operate more steadily in the future.

Affected by fluctuations in the fair value and return of invested projects and overall weak demand in the building materials business, etc., the 24-25 EPS forecast was lowered from 2.62/3.55 yuan to 0.63/0.80 yuan, and the 26-year forecast of 0.97 yuan was added. Using the segmented valuation method, 1) building materials: refer to the valuation of comparable companies, give 11.0xPE in 24 years, corresponding to a target value of 0.611 billion yuan; 2) Private equity: refer to the valuation of comparable companies and give 21.0xPE in 24 years, corresponding to a target value of 8.912 billion yuan.

The consolidated target value was 9.523 billion yuan, the target price was lowered to 12.47 yuan, and the company's purchase rating was maintained.

Risk warning

Performance rewards fall short of expectations, changes in investment income/fair value may decline significantly, and there is a risk of a decline in valuation.