Matters:
The company released its 2024 quarterly report: the company achieved revenue of 21.328 billion yuan in the first quarter of 2024, a year-on-year decrease of 32.08%; net profit to mother was 1,502 billion yuan, a year-on-year decrease of 41.14%; net profit after deducting non-return to mother was 1,368 billion yuan, a year-on-year decrease of 36.56%.
Commentary:
The performance was in line with expectations, and the company's competitiveness was highlighted under industry stress tests. The company achieved revenue of 21.328 billion yuan in the first quarter of 2024, a year-on-year decrease of 32.08%, and net profit to mother of 1,502 billion yuan, a year-on-year decrease of 41.14%.
According to the National Bureau of Statistics, the country's cement production in the first quarter was 337 million tons, -11.8% year on year, with production falling 22.0% year on year in March. Against the backdrop of a sharp decline in industry demand in the first quarter, we expect the decline in the company's cement sales to be slightly lower than the industry average, and the market share may increase further. In terms of price, according to Digital Cement Network, the price of 24Q1 cement in the national/East China region was -15%/-18% year-on-year, and -3%/-4% month-on-month respectively, while the company's 24Q1 gross margin was 17.75%, +1.24pct/month-on-month, respectively. We expect this is mainly due to the contraction of the company's low gross profit trading business revenue (only 0.7% gross margin of trade business in '23). In addition, the decline in coal prices also contributed to the cost item (24Q1 Qinhuangdao Q5500 liquidation price was 902 yuan/ton). (YoY - 227 yuan/ton). In terms of cost ratios, sales/management/R&D/finance expenses were 3.4%/6.3%/0.9%/-1.2%, respectively, compared with +0.9pct/+1.6pct/+0.1pct/-0.3pct. It is estimated that this is mainly due to a marked decline in revenue due to the decline in cement clinker sales, and the relative rigidity of expenses.
The price of cement along the river may have bottomed out, waiting for demand to pick up. According to Digital Cement Network, cement companies across the riverside region have begun two rounds of price increases since April 9. Judging from the actual implementation situation, we have calculated that the average price of high-standard cement in East China reached 362 yuan/ton, up about 14 yuan/ton from the end of March (as of April 26).
We believe that this price increase is mainly due to cement companies from all over the world taking the initiative to increase the number of false peak production days by about 20 days in April-May, and the pressure on the supply side eased slightly. Currently, most enterprises in the industry have already experienced losses, and the momentum for price recovery in the industry is strong. Looking ahead to the whole year, we judge that demand-side infrastructure investment is expected to support the marginal restoration of cement demand. Under the trend of recovering real estate demand, new real estate construction is also expected to gradually narrow the decline; as restraint mechanisms such as false peak production are expected to be further strengthened, supply and demand recovery is expected to drive the company's profit level to improve.
The integrated business is developing rapidly, and overseas projects are progressing one after another. 1) Production capacity and capital expenditure: The company's capital expenditure in 2023 is 19.51 billion yuan, and the company plans to spend 15.2 billion yuan in 2024. It is expected to add 3.9 million tons of clinker production capacity, 8.4 million tons of cement production capacity, 25.5 million tons of aggregate production capacity, and 7.2 million cubic meters of commercial concrete. The company's integrated business is progressing rapidly. 2) Overseas business: In 2023, the company's Uzbek Tashkent conch project was successfully completed and put into operation, and the construction of cement clinker production line projects of Cambodia's Phnom Penh Conch and the Uzbek Shangfeng Friendship Company progressed in an orderly manner.
Investment advice: Weak industry demand in 2023 compounded by increased industry competition, and profits deteriorated further; we expect industry profits to bottom out in 2024. The current market value of the company is only 0.6x the 2024 PB, which is at the bottom of history. Considering that industry demand continues to be pressured, we adjusted the company's 2024-2026 EPS forecast to 1.68/1.94/2.07 yuan/share (the original value was 1.87/2.23/2.45/yuan/share), and the corresponding PE was 14x/12x/11x, respectively; considering that the current cement industry may be close to the bottom of the cycle, we maintained the company's target price of 30.00 yuan/share, corresponding to 18xPE in 2024, maintaining the “recommended” rating.
Risk warning: macroeconomic downside risks; capacity construction progress falls short of expectations; raw material prices fluctuate.