Incident: Hailuo Cement released its 2023 annual report. In 2023, the company achieved revenue, net profit to mother, and net profit deducted from non-net profit of 1410/104/10 billion yuan, respectively, or +7%/-33%/-34% over the same period last year. In 23Q4, the company achieved revenue/net profit/net profit after deduction of non-net profit of 420/18/18 billion yuan, respectively, or -10%/-46%/-41% year-on-year. The company plans to pay a cash dividend of 5.07 billion yuan, plus the 340 million yuan paid for the repurchase, totaling 5.41 billion yuan, with a dividend rate of 51.8%, +1.7 pcts compared to the previous year.
Comment:
Market share increased slightly, and profit per ton declined further. As the real estate market continued to weaken in 2023, the intensity of construction decreased, and the pace of construction slowed down, the country's demand for cement contracted further, and production volume was -1% compared to the same period last year. The company's operations have been affected, but it is still superior to the industry. The sales volume of cement clinker (self-produced products) was 285 million tons, +0.7% year over year; in 2024, the company plans to have net sales of cement and clinker (excluding trade volume) of 299 million tons for the whole year, and the cost of tons of products is expected to remain relatively stable. During the reporting period, due to the decline in coal procurement prices and coal consumption, the company's comprehensive cost of cement clinker products decreased by 11.04% year-on-year. The company's fuel power cost for a ton of cement clinker (from the product) fell back to 120 yuan/ton, -17% year over year. Affected by sluggish demand, cement prices fluctuated downward throughout the year, further suppressing product profitability levels. In 2023, the price of a ton of cement clinker (self-produced) was 273 yuan, -48 yuan; gross profit per ton was 68.5 yuan, or -22 yuan. In 2023, the company's consolidated gross margin was 16.6%, -4.7pcts year-on-year.
Capital expenditure remains high, and the industrial chain is being extended and accelerated. During the reporting period, the company's capital expenditure was 19.5 billion yuan, mainly for project construction investment expenses. By the end of the reporting period, the company had a clinker production capacity of 272 million tons, cement production capacity of 395 million tons, aggregate production capacity of 149 million tons, commercial concrete production capacity of 39.8 million cubic meters, and an installed capacity of 542 megawatts of optical storage power generation in operation. In 2024, the company plans to spend 15.2 billion yuan on capital, mainly its own capital, which will mainly be used for project construction, energy saving and environmental protection technology reform, and merger and acquisition project expenses. It is expected to increase clinker production capacity by 3.9 million tons, cement production capacity by 8.4 million tons, aggregate production capacity by 25.5 million tons, and commercial concrete production capacity by 7.2 million cubic meters throughout the year. The additional production capacity will provide new impetus for the company's continued growth in the future.
Profit forecasting, valuation and ratings: In 2023, demand in the cement industry declined slightly due to the contraction in real estate demand; in this context, Conch Cement gained an increase in market share due to its competitive advantage. Considering the phased pressure on the company's performance, we lowered the company's 2024-2025 net profit forecast to 8 billion yuan (63% reduction) and 8.6 billion yuan (63% reduction), respectively, and added the 2026 net profit forecast of 11.1 billion yuan. Considering that cement companies' profits are close to the bottom, we are still optimistic about investment opportunities where the bottom of cement stocks reverses, and maintain a “buy” rating for both the company's A shares and H shares.
Risk warning: the risk that demand falls short of expectations, the risk that the industry's supply and demand pattern will deteriorate, the risk that the price of raw fuel materials will continue to rise sharply, uncertainty about overseas investment, and the risk of exchange gains and losses, etc.