Description of the event

The company announced its 2024 three-quarter report. Revenue for the first three quarters was 16 billion yuan, down 6% year on year; net profit was 0.31 billion yuan, down 52% year on year; of these, the company's net profit for the 24Q3 quarter was 0.14 billion yuan, up 77% year on year.

Incident comments

Total demand is under pressure, limiting cement performance. The area of new housing construction in the first three quarters of 2024 decreased by 22.2% year on year; infrastructure investment (excluding electricity, heat, gas and water production and supply) increased by 4.1% year on year, down from the 5.9% growth level for the whole of last year. In the first three quarters of 2024, the country's cement production was 1.327 billion tons, down 10.7% year on year; among them, cement production growth rates in a single month of 7/8/9 were -12%, -12%, and -10%, respectively.

As far as the company is concerned, the total sales volume of cement and clinker in the first three quarters of 2024 was 43.86 million tons, down 7% year on year; commercial mixed sales were 8.29 million square meters, up 33% year on year; and aggregate sales volume was 46.28 million tons, up 71% year on year. Specifically, the tonnage indicators are: 1. Cement sector: The sales prices of the company's cement and clinker in the first three quarters were 239 yuan/ton and 192 yuan/ton, respectively, down 51 yuan/ton and 57 yuan/ton; the tonnage costs were 208 yuan/ton and 187 yuan/ton, respectively, down 42 yuan/ton and 49 yuan/ton, respectively. The final gross profit per ton was 31 yuan/ton and 5 yuan/ton, respectively, down 9 yuan/ton and 8 yuan/ton, respectively. 2. Commercial mixed sector: The sales price in the first three quarters was 334 yuan/square meter, down 45 yuan/square meter year on year, and gross profit per ton was 41 yuan/square meter, down 3 yuan/square meter year on year. 3. Aggregate sector: The sales price in the first three quarters was 36.2 yuan/ton, a slight decrease of 0.2 yuan/ton from the previous year. The cost of the ton was 22 yuan/ton, up 5 yuan/ton. The gross profit per ton was 14 yuan/ton, down 5 yuan/ton from the previous year.

The total price increase in the Yangtze River Delta market is about 100 yuan/ton since October. The overall implementation situation is relatively good, laying a good peripheral foundation for the South China market. The South China market is about to enter a dry period, and the regional impact is gradually weakening. It is expected that 24Q4 will also usher in a certain price elasticity in the South China market.

Looking at the South China cement mid-cycle, construction in the Greater Bay Area provides momentum for construction. Meanwhile, regional supply has now come to an end, and the market has already entered a process of rebalancing. The regional concentration is high, CR2 is nearly 50%, and it has a good foundation of collaboration. As a regional leader, the company took the lead in the golden period of industry development, and has comprehensive advantages such as scale and distribution. From a strategic perspective, at the end of 24Q2, the company's pricing approach returned from share to collaboration, which had an immediate impact on prices throughout the region. Considering that prices and profits had bottomed out before, price flexibility was remarkable under the influence of the strategic switch. At the same time, in recent years, the company has vigorously laid out aggregates, and is now entering the harvest period, bringing a new growth curve to the company.

An economic work conference was held, and it was proposed to increase countercyclical adjustment of fiscal policies to facilitate the segmentation of building materials such as cement. At the same time, in October, the central bank proposed injecting liquidity into the capital market. As a clean segmented track for the entire industry, cement will also usher in restoration elasticity. For chemical bonds, the first is that it can reduce interest expenses, and the second is to open up medium term leverage space, which is conducive to a month-on-month improvement in infrastructure demand.

Furthermore, it is also necessary to pay close attention to supply-side changes in the industry: 1) overproduction management has led to the withdrawal of some small production capacity and re-compression of supply; 2) carbon trading has increased costs for small and medium-sized enterprises, and agreement consensus is strengthened.

The expected 2024-2025 results are 0.66 and 1.16 billion yuan, corresponding PE is 19 or 11 times, and the purchase rating.

Risk warning

1. Demand recovery falls short of expectations; 2. Aggregate prices have declined.