The company achieved net profit of 0.155 billion yuan in the third quarter, up 20.34% year on year. The company released its quarterly report for the third quarter of '24. It achieved revenue/net profit to mother of 2.93/0.381 billion yuan in the first three quarters, -28.81%/-37.98%, and achieved net profit deducted from non-return to mother 0.245 billion yuan in the first three quarters, or -52.43% year-on-year. Among them, Q3 achieved revenue/net profit to mother of 0.954/0.155 billion yuan in a single quarter, -23.39%/+20.34% year-on-year, after deducting non-attributable net profit of 0.061 billion yuan, or -51.15% year-on-year. Non-recurring profit and loss were mainly due to changes in the fair value of transactional financial assets. Affected by the recovery and rise in stock indexes at the end of the quarter, earnings from changes in fair value of securities held by the company increased, and performance increased, slowing down the decline in the company's performance.

Net profit from Q3 doubled, and the decline in Q4 and next year's performance in the first three quarters was mainly due to a sharp drop in volume and price. The sales volume of cement clinker in the first three quarters was 11.12 million tons, down 16% year on year, and cement price/cost was -18%/-12% year on year, respectively. The cost reduction was less than the price drop. Looking at a single quarter, Q3's revenue fell 3% month-on-month, and net profit to mother doubled month-on-month. We estimate that Q3's cement clinker sales volume was 3.81 million tons, -17%/+3% year-on-month, respectively. On the price side, according to Digital Cement Network, the average price of Q3 cement in South China/East China was +0.4%/-0.2% year over year, and +2.0%/-0.9% month over month. At the end of September, the Yangtze River Delta clinker price plan was raised by 100 yuan/ton, then implementation began in East China, Central China, and Southwest China. As of October 18, 2024, the average price of cement tons in South China/East China once again rose to 368/424 yuan. There are still expectations that will continue to rise in the future, and we are optimistic about improving the elasticity of Q4 and next year's performance.

Q3 The net interest rate was increased, and the capital structure was optimized

The company's overall gross profit margin for the first three quarters was 23.11%, -3.48pct year on year. Among them, the overall gross profit margin for the Q3 quarter was 21.11%, and -2.44/ -2.51 pct yoy, respectively. The cost rate for the first three quarters was 10.64%, +2.85pct year on year. Among them, the sales/management/ R&D/finance expenses ratio was +0.56/+2.03/+0.32/-0.06pct year on year, respectively. The increase in R&D expenses was mainly due to increased material consumption in the current R&D project, which ultimately achieved a net interest rate of 13.45%, or -1.63pct year on year. The company's net profit margin for Q3 was 16.69%, +6.15/+8.31pct year-over-year, respectively. The balance ratio at the end of 24Q3 was 9.89%, -0.33pct year on year, and the capital structure was optimized. Net operating cash flow for the first three quarters was 0.204 billion yuan, -0.608 billion yuan year on year, revenue ratio of -1.07 pct year on year reached 110.6%, and payment ratio of +2.3 pct year on year reached 104.8%.

Dividends highlight investment value and maintain a “buy” rating

The company's dividend rate for 23 years is as high as 79%. The current dividend rate is 6.5%, and the dividend attributes are outstanding. Considering that Q3's net profit to mother increased month-on-month, and that Q4 still has price increases, the 24-26 net profit forecast was raised to 0.65/0.78/0.9 billion yuan (previous value 0.63/0.75/0.87 billion yuan), giving the company 0.9 times PB for 24 years, with a target price of 9.2 yuan, maintaining the “buy” rating.

Risk warning: Demand for cement falls short of expectations, price increases fall short of expectations during peak season, rising coal costs, etc.