1H24 net profit was in line with forecast guidelines, and 2Q24 reversed month-on-month losses

Wannianqing 1H24 achieved net profit attributable to the parent company of 1.51 million yuan, or -99.4% year over year, in line with the performance forecast guidelines (the July 10 performance forecast estimates 1H24 will be a net profit of 1.5-1.7 million yuan attributable to the parent company). On a quarterly basis, 2Q24 was attributable to the parent company's net profit of 10.87 million yuan, which has reversed losses from month to month.

As the peak season approaches, we expect cement prices to enter an upward time window, which is expected to drive the company's 2H24 profit marginal month-on-month recovery. In the medium to long term, although demand is still under pressure, the industry's consensus on stabilizing profits through active supply optimization has become more clear, which will help stabilize the gross profit level per ton. Taking into account lower sales volume (2024), higher gross margin and lower commercial mixed revenue, we lowered 2024/2025/2026EPS by 26.6/23.7/ 23.8% to 0.27/0.29/0.30 yuan, and the target price was reduced by 31.0% to 4.92 yuan, based on 0.55x2024 P/B (2024BVPS: 8.94 yuan), which is one standard deviation lower than the average P/B since 2015 to reflect the pressure on industry demand. Maintain an “increase in holdings.”

The revenue and gross margin of the cement business mix declined simultaneously. Effective cost control was affected by the sharp drop in product volume and price, and the company's cement and commercial mixed revenue and gross margin declined simultaneously. The cement business 1H24 achieved revenue of 1.62 billion yuan, or -41.7% year over year; gross profit margin was 14.1%, or 4.6pct year over year. The mixed commercial business 1H24 achieved revenue of 0.73 billion yuan, -32.7% year over year; gross profit margin of 12.5%, -4.7 pcts year over year.

Aggregate business revenue was +7.2% to 0.15 billion yuan, but due to a decline in gross margin (-14.0pct to 20.9% year over year), aggregate business gross profit was -35.9% YoY to 31.91 million yuan. Although the main business was challenged by the market, cost control was effective. 1H24 sales, management, R&D and financial expenses totaled 0.33 billion yuan, or -10.6% year-on-year, which partially mitigated the impact of the decline in volume and price of the main business.

Prices in the Jiangxi market have recovered since mid-August. Supply optimization is expected to drive price restoration during peak season The Jiangxi cement market is a regional market with relatively weak price performance since 2024. Among them, prices gradually declined in January-July, and only initially showed a steady rebound trend after mid-August. As of September 6, the average price in the Jiangxi market since 2H24 is still 24 yuan/ton lower than the average price of 1H24. However, as the industry further clarifies the consensus to stabilize industry profits through false peak production, the effect of supply optimization in promoting cement price restoration is expected to be even more remarkable. The peak season for the superposition industry is approaching, and we expect cement prices in Jiangxi to rise more significantly in 4Q24.

The balance sheet is still strong

At the end of 1H24, the company had cash of 3.79 billion yuan and net cash of 1.23 billion yuan after deducting interest-bearing liabilities. The balance sheet is still strong. We believe this will help the company to be more relaxed and undeterred in an industry environment that is still facing difficulties, so that it can be in a more favorable competitive position after the regional market is cleared.

Risk warning: Real estate sales have been steady and slower than expected, and production execution is weaker than expected.