Incidents:

The company released its 2023 report. During the reporting period, the company achieved operating income of 107.380 billion yuan, a year-on-year decrease of 19.01%; realized net profit of 1,965 billion yuan, a year-on-year decrease of 56.74%; and 2023Q4 achieved revenue/net profit to mother of 269.93/1.914 billion yuan, a year-on-year change of -20.48%/301.08%.

Comment:

The price of cement has declined at a low level, and corporate profits are still under pressure. The cement industry faced serious challenges in 2023, and the bottom of cement prices fluctuated. According to data from the China Cement Association, the average transaction price in the national cement market in 2023 was 394 yuan/ton (P.O42.5 scattered price), and the price was at its lowest level in nearly six years.

In 2023, the company's cement/commercial mix sales volume was 236 million tons/77 million square meters respectively, down 1 year on year respectively.

43%/3.26%, which is narrower than the previous year's decline. In 2023, the company's average price per ton of cement clinker cost per ton gross profit was 270/231/39 yuan respectively, a year-on-year decrease of 58/50/8 yuan. Average commercial price/gross profit per cubic meter was 361/48 yuan respectively, a year-on-year decrease of 72/12 yuan.

The aggregate business continues to grow, and the layout is being expanded in pursuit of victory. In 2023, the company achieved aggregate sales volume of 142 million tons, an increase of 23.55% over the previous year. The average gross profit per ton of aggregate was 41/18 yuan, and the gross margin was 44.06%, which was significantly higher than 14.30%/13.24% of the cement clinker/commercial mixing business. The high gross profit of the aggregate business continued to contribute to the company's profit growth points. At present, the company's aggregate production capacity has reached 220 million tons. The company has invested in the construction of an aggregate production base project with an annual output of 40 million tons of Chizhou Zhongxin Building Materials Co., Ltd., with a total investment of about 10.613 billion yuan, which is currently under construction. The “cement+” business, especially aggregates, may become an important growth pole for the company in the future.

Internal integration optimizes benefits, and waits for industry sentiment to recover. The company's expense ratio for the 2023 period was 13.32%, up 1.70pct year on year; among them, sales/management/R&D/finance expenses increased by -26.35%/-5.94%/24.75%/-15.52% year on year, achieving effective operating cost control. In 2023, the company comprehensively deepened three-level management, established a three-level management of “listed companies - regional companies - member enterprises”, set up 15 regional companies, split the business to achieve dedicated positions, and effectively improve management efficiency. 2024 may still be a difficult year in the future, but the company will grasp the three major factors of “dual carbon, cement +, and internationalization”, increase revenue and profit through collaborative industrial chain development, and at the same time rely on central enterprises to seize urbanization rate opportunities. Leveraging the dominant advantage of large enterprises, it is expected that performance will pick up after the industry boom improves.

Maintaining the company's “gain” rating, and considering the company's aggregate production and adjusted profit forecasts due to downstream demand pressure, the company's net profit from 2024 to 2026 is expected to reach 21.72/25.38/2,983 billion yuan, EPS is 0.25/0.29/0.34 yuan, and the corresponding PE is 29.44/25.19/21.43 times.

Risk warning: Overseas demand falls short of expectations, and valuation and profit forecasts fall short of expectations.