Incident: The company announced the acquisition of a total of 83.81% of Lafarge Africa Plc (Lafarge Africa Plc) shares through two wholly-owned subsidiaries, with a transaction consideration of approximately $838.13 million in cash. In terms of valuation, the target company's net profit in 2023 was 56.97 million US dollars, corresponding to PE valuation of about 17.6x, EBITDA of about 0.15 billion US dollars, and EV/EBITDA valuation of about 7x; the target company had 10.6 million tons/year production capacity, and the estimated production capacity per ton was about 94 US dollars/ton.

Nigeria has great potential for regional development. The company acquired high-quality assets from Nigeria, the majority shareholder, to build a bridgehead for development in West Africa. Nigeria is the most populous country and largest economy in Africa. It has good resource endowments. In 2023, its urbanization rate is only 54%, and the annual cement consumption per capita is only about 140 kilograms. In the long term, improving infrastructure and increasing urbanization and industrialization will be Nigeria's long-term development priorities, and the regional cement market has great potential for development. Nigeria's cement industry has a good structure, high market concentration, and a good competitive pattern. In 2023, only three companies dominate the market. In 2023, the market shares of the three companies Longyi Dangote, Longer BUA, and the targets of this merger and acquisition were 58.5%, 23.6%, and 17.9%, respectively. According to Agusto & Co. As of mid-2024, Nigeria's total cement production capacity is about 62.8 million tons; in 2023, production is about 30.96 million tons, and sales volume is about 28 million tons. Nigeria is located in southeastern West Africa, bordering the Gulf of Guinea in the Atlantic Ocean. It is blessed with excellent shipping conditions and has the largest shipping port in West Africa. After this acquisition is completed, the Nigerian factory will become an important strategic fulcrum for Huaxin in West Africa, which will help the company rapidly expand the West African market.

The target company of this transaction is the earliest cement company in Nigeria, with high-quality limestone resources and location advantages. It has 4 large-scale cement plants and 6 concrete plants in Nigeria. The annual production capacity of cement and concrete is 10.6 million tons and 0.4 million square meters respectively. Combined with Huaxin's advantages, the potential for technology and management optimization after the merger and acquisition is impressive. According to the acquisition announcement data, the USD/RMB exchange rate was 7.2. The final target company's revenue for January to September 2023 and 2024 was 3.25 billion yuan and 2.089 billion yuan respectively, with net profit of 0.41 and 0.26 billion yuan respectively, with net interest rates of 13% and 13%. The net profit to the mother corresponding to the 84.81% shareholding ratio was about 0.34/0.22 billion yuan. The profit increase for Huaxin was significant after the merger and acquisition was completed.

The company's overseas mergers and acquisitions model is relatively mature. Through the target's comprehensive advantages of enabling technology, equipment, management, etc., it achieves mergers and acquisitions added value. Huaxin is a pioneer in domestic cement going overseas, and has accumulated rich experience. In recent years, companies have mostly used M&A production lines at target locations (rather than self-built) to achieve overseas layout, and have formed a relatively complete model. That is, after taking a share, the company uses its comprehensive advantages to improve technology, upgrade equipment, and reduce management costs. This model avoids the supply impact of self-construction on the local market and can effectively increase the return on capital. The price of cement is high in the African region itself. The costs and performance of the company's plants in South Africa and Mozambique have improved markedly after mergers and acquisitions. It is expected that after the completion of this acquisition, the target profitability is expected to be further improved.

Profit forecast and investment rating: Without considering the impact of this acquisition on the company's profit, the company's 24-26 revenue is expected to be 33.512, 37.542, and 40 billion, respectively, -0.72%, +12.02%, and +6.55%, respectively, and net profit to mother is 1.805, 2.207, and 2.583 billion, respectively, -34.63%, +22.26%, and +17.03%. Corresponding PE is 15.8, 12.9, and 11.0, respectively.

The long-term downward trend in domestic cement demand will not change in the short term. It is optimistic that Huaxin Cement, a leading company in the industry, will go overseas and expand its non-cement business, and maintains a “highly recommended” rating.

Risk warning: Industry supply increased beyond expectations; downstream demand fell short of expectations; costs rose above expectations.