Incident: The company disclosed its 2022 annual report. It achieved total operating revenue of 132.58 billion yuan during the reporting period, -22.0% year on year, and net profit of 4.54 billion yuan to the mother, -63.7% year on year. Q4 achieved total revenue of 33.97 billion yuan in a single quarter, or -34.1% year on year, and net profit of the mother was 490 million yuan, or -81.5% year on year. The company distributes a cash dividend of 2.70 yuan (tax included) for every 10 shares to all shareholders, with a dividend payment rate of 51.5%.

The volume and price of cement and commercial mixers fell sharply, and the aggregate business continued to expand rapidly: (1) The cement and clinker business achieved annual revenue of 89.18 billion yuan, -22% year on year, with sales volume of 271.57 million tons, -14.4% year on year. It is estimated that the average price per ton was 328 yuan, -31 yuan year on year; the commercial mixing business achieved annual revenue of 34.32 billion yuan, -29.3% year on year, with sales volume of 79.33 million tons compared to -24.2% year on year. The estimated average price per side was 433 yuan, -31 yuan year on year. Multiple factors, such as continued pressure on real estate demand and the actual amount of infrastructure falling short of expectations, led to low demand throughout the year, and the volume and price of the company's cement and commercial mixed business plummeted. (2) The aggregate business achieved annual revenue of 5.504 billion yuan, +31.4% year on year, sales volume of 115.07 million tons, +34.3% year on year. The estimated average price per ton was 48 yuan, or -1 yuan year on year; the sharp increase in aggregate sales was mainly due to rapid expansion of production capacity.

Gross margin fell 8.8 pct to 16.1% year on year, and asset quality was clearly optimized: (1) The gross profit margin of the cement and clinker business in 2022 was 14.4%, year-on-year - 11.0 pct, gross profit per ton was 47 yuan, year-on-year - 55 yuan. It is estimated that in 2022, the cost per ton of cement and clinker was 281 yuan, +24 yuan over the same period last year. Looking at a breakdown, the cost of tonnes of energy increased 25.2 yuan. (2) The gross margin of the commercial mixing and aggregate business in 2022 was 14.0%/47.4%, respectively, and -0.7pct/+1.1 pct respectively over the previous year. The gross profit per unit was basically stable. (3) The cost rate for 2022 was 11.6%, corresponding to a single ton of cement period expenses of 57 yuan, which was +1.1 pct/+1 yuan respectively over the previous year. Considering the obvious decline in company revenue and cement sales, the actual cost control results in 2022 were remarkable; the net interest rate was 3.8%, the year-on-year rate of -5 pct, corresponding to a net profit of 18.7 yuan per ton of cement, which corresponds to a net profit of 18.7 yuan per ton of cement, -28.3 yuan over the previous year.

The debt ratio continued to decline in the context of declining cash flow from operating activities. Net cash flow from operating activities in 2022 fell 46.3% year on year to 15.25 billion yuan, a decrease less than the decline in net profit, mainly due to increased depreciation and amortization; cash paid for the purchase and construction of fixed assets, intangible assets and other long-term assets in 2022 was 15.53 billion yuan, -22.5% year on year, and capital expenditure on a high basis slowed down; the balance ratio at the end of 2022 was 66.3%, -1.7 pct year on year, -0.8 pct from the end of the third quarter.

Demand for cement picked up in 2023, driven by infrastructure demand, driving the industry's supply-demand balance and reconstruction. The boom is expected to rise from the bottom. The year-on-year decline in cement production narrowed sharply in January-January '23. As of March 17, the national cement shipment rate was 65.3%, compared to the same period in 2022 +5.5pct, and the national cement storage ratio was 58.7%, down 14.1 pct from the beginning of 2023. With strong infrastructure demand and stable housing demand compounded by misplaced peaks and self-discipline cooperation, the balance between supply and demand in the industry was gradually reconstructed, driving the economy to bottom up and up, driving the company's quarterly profit bottom up.

Profit forecasting and investment ratings: The balance between supply and demand in the industry has been reestablished, the bottom of the boom has rebounded. After the company's integration, lean production and technological reform have improved, sustainable competitiveness has been enhanced, and profits are expected to improve steadily. Based on the slow recovery of real estate investment, coal prices remained high. We lowered our net profit from 2023-2025 to 555/ 7885/8.28 billion yuan (the previous forecast value for 2023-2024 was 101/113 billion yuan). The closing price on March 23 corresponds to a price-earnings ratio of 14.6/10.3/9.8 times, maintaining the “increase in holdings” rating.

Risk warning: The recovery in cement demand falls short of expectations; the expansion of the aggregate business falls short of expectations; the risk of real estate credit risk getting out of control; the risk of increased market competition.