The company released its 2024 semi-annual report: 2024H1 achieved revenue of 45.566 billion yuan, a year-on-year net profit of -30.37%, a net profit attributable to mother of 3.326 billion yuan, a year-on-year net profit of -48.59%, after deducting non-return net profit of 3.185 billion yuan, or -48.28% year-on-year.

Among them, 24Q2 revenue was 24.238 billion yuan, or -28.85% year-on-year, net profit to mother was 1.823 billion yuan, or -53.46% year-on-year, after deducting non-net profit of 1.816 billion yuan, or -54.63% year-on-year. The company's gross margin for the first half of 2024 was 18.93%, -0.5pct year on year, net margin was 7.43%, -2.97pct year on year; 24Q2 gross margin was 19.96%, -2.17pct year on year, +2.21pct month on month.

The industry continues to be under pressure, and cement leaders lead profits. Domestic cement demand continued to be weak in the first half of the year due to continuous adjustments in the real estate market, insufficient start of infrastructure projects, and widespread continuous rainfall. In 24H1, the country's cumulative cement production was 0.85 billion tons, down 10% from the previous year (comparable caliber). In the first half of the year, the company's cement clinker sales volume was 0.126 billion tons, down 3.35% year on year. Sales performance was superior to the overall level of the industry; revenue was 30.21 billion yuan, or -23.99%.

Price competition in mainstream consumer markets such as the Yangtze River Delta and Pearl River Delta remained fierce during most of the first half of the year. The average price of cement in the 24H1 national/East China/South China decreased by 12.9%/16%/19.9%, respectively. Industry efficiency continues to decline due to low volume and price reductions. According to digital cement estimates, the domestic cement industry lost about 1 billion yuan as a whole in the first half of the year. We estimate that the average price of cement clinker in 24H1 was 239.76 yuan/ton, down 21.58% year on year; gross profit margin was 21.78%, -4.96pct year on year; comprehensive ton cost was 187.57 yuan, -16% year on year, of which raw material/fuel costs were -13.7%/-20.9%, respectively.

Aggregate and commercial mix achieved revenue growth, but gross margin declined. In the first half of the year, the company added 2 million tons of aggregate production capacity and 4.8 million cubic meters of commercial mixed production capacity. The 24H1 aggregate business achieved revenue of 2.191 billion yuan, +29.84% year-on-year, gross profit margin of 47.84%, year-on-year -9.71 pct; commercial mixed business achieved revenue of 1.178 billion yuan, +20.6% year-on-year, gross profit margin of 8.42%, year-on-year.

The decline in the revenue base affected the expense ratio, and the declining cash flow in accounts receivable remained healthy. The 2024H1 company's cost ratio for the period was 12.75%, +2.04pct year over year. Affected by the decline in revenue base, sales expense rate/management expense ratio/R&D expense ratio/ +0.87/+0.74/-0.16pct year on year, respectively, financial expenses were -0.443 billion (23H1 was -0.821 billion), mainly due to exchange rate fluctuations in some overseas project financing. The balance of notes receivable and accounts receivable at the end of 24H1 was 8.558 billion yuan, or -42.11%. Thanks to the optimization of the asset structure, the net operating cash flow at the end of 2024H1 was 6.871 billion yuan, +35.75% year over year.

Overseas business continues to expand, and profitability performance is excellent. The company's Andijan project in Uzbekistan was put into operation in the first half of the year, and the construction of conch in Phnom Penh, Cambodia progressed in an orderly manner; the 2024H1 overseas business achieved revenue of 2.3 billion yuan, +5.72% over the same period, and a gross margin of 39.99%, or +10.23pct year-on-year.

Investment advice: Currently, the cement industry is at a relatively low position. The company's leading position is stable. Marginal demand improvements and supply compression in the second half of the year are expected to usher in profit recovery. We continue to be optimistic about recovery-driven price increases in the second half of the year. We expect the company's net profit to mother in 2024-2026 to be 8.012, 8.237, and 8.522 billion yuan, respectively. The PE corresponding to the current price is 14x, 13x, and 13x, maintaining the “recommended” rating.

Risk warning: the risk that demand for infrastructure and real estate falls short of expectations, and the risk of fluctuating raw material prices.