The company achieved net profit of 3.33 billion yuan in the first half of the year, -48.56% of the year on year, and achieved net profit of 45.57/3.33 billion yuan in the first half of the year, -30.44%/-48.56%, net profit without return to mother 3.18 billion yuan, or -48.25% year-on-year, of which Q2 achieved revenue/net profit to mother 24.24/1.82 billion yuan in a single quarter, minus net return to mother Profit was 1.82 billion yuan, or -54.63% year-on-year. Second-quarter profit was mainly affected by net investment income/income from changes in fair value totaling 0.28 billion yuan. The main business was basically in line with expectations.

The decline in cement prices dragged down revenue, and the aggregate business continued to grow

The company achieved revenue of 33.579 billion yuan of self-produced cement clinker in the first half of '24, down 20.82% year on year, mainly affected by the drop in product prices. We estimate that the average price per ton is 240 yuan/ton, -66 yuan (-21%) year on year, and 23H1 self-produced cement clinker sales volume is 0.126 billion tons, down 3.35% year on year, higher than the overall level of the industry (-10%), and the market share reached 14.8%. It is estimated that the cost of cement clinker tons in the first half of the year was 188 yuan, down 36 yuan/ton (-16%) year on year. The main reason is that fuel and power costs fell by 30 yuan/ton due to the year-on-year decline in coal prices and the year-on-year reduction in coal electricity consumption. In addition, the cost per ton of raw materials also declined slightly, ultimately achieving a gross profit of 52 yuan per ton, or -29 yuan year on year. The aggregate business achieved revenue of 2.19 billion yuan in the first half of the year, up 29.84% year on year. It is expected to be driven by sales growth. The gross profit margin is 47.84%, -9.71 pct year on year, and remains relatively high. In the first half of the year, the company continued to advance project construction, with a capital expenditure of 7.664 billion yuan. The domestic Wuhu conch cement grinding project and the Mengcheng conch project was put into operation, and the overseas Andijan project in Uzbekistan was put into operation. In terms of industrial chain development, two aggregate projects were put into operation one after another, and actively added five commercial concrete projects through construction and leasing. In total, the clinker production capacity was added 2.3 million tons, with a cement production capacity of 4.7 million tons, and 2 million tons of aggregate production capacity. Concrete production capacity 4.8 million cubic meters.

Q2 Gross margin increased month-on-month, and cash flow was still abundant

The company's overall gross profit margin in the first half of the year was 18.92%, -0.5pct year on year, of which Q2 gross profit margin was 19.96% in the single quarter, -2.16pct year on year, and +2.21pct month-on-month. The overall expense ratio for the first half of the year was 9.5%, +2.4 pct year on year. Among them, the sales/management/finance expenses ratio increased by +0.9/+1.1/+0.3 pct year on year, and the sales and management expenses ratio increased mainly due to the decline in revenue, which ultimately reduced the non-net interest rate of 7%, or 2.4 pct year on year. In Q2, the company's net income from investment and net income from changes in fair value decreased by 0.17/0.13 billion yuan year-on-year respectively in a single quarter, which also squeezed net profit. However, the net operating cash flow in the first half of the year was 6.87 billion, up 35% year on year, and the balance ratio was 19.5%. Net cash on hand reached 46.4 billion, and cash reserves were still sufficient.

The company has a clear advantage in size and maintains a “buy” rating

By the end of the first half of the year, the company had a clinker production capacity of 0.274 billion tons, cement production capacity 0.399 billion tons, aggregate production capacity 0.151 billion tons, commercial concrete production capacity of 44.6 million cubic meters, and an installed capacity of 545 MW of optical storage power generation. The scale advantage was obvious, and profits were relatively low or higher than the industry level. However, as the industry's self-discipline strengthens, cement prices are still expected to rise restoratively. Considering the decline in performance in the first half of the year, the company's net profit forecast for 24-26 was lowered to 8.4/10.5/12 billion yuan (previous value: 13.41/14.87/16.29 billion yuan). Referring to comparable companies, the company was given 0.72 times PB for 24 years, corresponding to a target price of 25.9 yuan, maintaining the “buy” rating.

Risk warning: Demand for cement falls short of expectations, price increases fall short of expectations during peak season, rising coal costs, etc.