Incident: The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved revenue of about 24.719 billion yuan, an increase of 2.29% over the previous year; net profit attributable to the parent company was 1.138 billion yuan, a year-on-year decrease of 39.26%. Among them, the third quarter achieved revenue of 8.482 billion yuan, a year-on-year increase of 1.78%, and net profit to mother of 0.408 billion yuan, a year-on-year decrease of 40.17%. The results were in line with expectations.

The year-on-year revenue growth rate for the third quarter is expected to be mainly due to increased overseas sales, and domestic volume and prices are still under pressure. In the third quarter, the year-on-year growth rate of the company's revenue rebounded from -0.54% in the second quarter to 1.78%, and the year-on-year growth rate was corrected again. We judge that it was mainly due to the increase in the company's overseas production capacity; domestically, the country's cement production in the third quarter of 2024 was 0.544 billion tons, down 11.85% year on year (at the end of 2023, the company's cement production capacity in Hubei, Yunnan, and Hunan accounted for 40%, 23%, and 13% of the company's domestic production capacity respectively). Among them, the three provinces of Hubei, Yunnan and Hunan fell 6.39%, 13.19%, and 14.79%, respectively. In terms of price, in the third quarter of a single year, the average price of PO42.5 bulk cement in Wuhan, Kunming, and Changsha dropped by 22 yuan, up 18 yuan, and increased by 42 yuan, respectively. It is expected that the company's volume price will still be under pressure.

Profitability continued to be under pressure in the third quarter of the single quarter, and expense ratios improved. In terms of profitability, the company's gross profit margin for the first three quarters was 24.02%, down 2.28 percentage points year on year. The gross profit margin for the third quarter was 24.74%, down 5.23 percent year on year. We judge that the decline in profit is due, on the one hand, to the fact that the domestic regional cement boom is still sluggish, and on the other hand, due to the high comprehensive production cost of acquired African production capacity, which has dragged down the profitability of overseas cement to a certain extent. In addition, the company's expense ratio for the first three quarters was 13.69%, up 1.13 percentage points from the previous year. Among them, sales, management, R&D, and finance expense ratios changed by +0.25, +0.15, -0.21, and +0.95 percentage points, respectively. The expense ratio for the third quarter of the single quarter was 14.34%, down 0.49 percent year-on-year. Among them, sales, management, R&D, and finance expenses changed by -0.20, -0.57, -0.75, and +1.02 percentage points, respectively.

Profit forecast and rating: At present, domestic cement prices are beginning to break out of the bottom. On the one hand, corporate price increases have begun to fall, and cement prices will begin to rebound in September. On the other hand, positive statements of “debt+real estate” are expected to drive improvements in demand-side expectations. We judge that the company's performance is expected to bottom out in Q3, and subsequent recovery is reasonable. We maintain our profit forecast. We expect the company's net profit to be 2.333 billion yuan, 2.73 billion yuan, and 3.277 billion yuan respectively for 2024-2026, corresponding to the PE share price of A shares on October 28, 13X, 11X, and 9X. The corresponding Hong Kong stock price PE on October 28 is 7X, 6X, 5X. Maintain an “Overweight” rating.

Risk warning: domestic real estate demand continues to decline; high profit decline in overseas cement business; decline in aggregate business profits