Lower the target price to 21.2 yuan to maintain "buy"

Based on lower cement sales and ton gross margin assumptions, to reflect the weakening of cement prices and the continued downturn in sales since 2Q22, we reduced the net profit of Huaxin cement 22E/23E/24E by 17%, 16% and 15% respectively. The target price is reduced by 17% to 21.2 yuan, based on 9x 2022E PE, in line with the average PE since 2011. At a time when the cement industry is facing the common challenge of weak demand in the short term, we expect that with the rapid development of aggregate and commercial mixing and other integrated business, the company is expected to better stabilize the periodic fluctuations of cement business profits. In the medium term, under the background that the competition and cooperation pattern of the cement industry is still stable, we believe that the gradual stabilization of demand in the future will catalyze the rapid repair of the profit margin of the cement business. the sustained landing of the integration project and the steady progress of internationalization will be an important pillar to promote the company to achieve substantial revenue and profit growth in 2025. Maintain a "buy" rating. In 22-23-24, the annual EPS is predicted to be 2.36pm 2.95Universe 3.40RMB.

Cement prices have fallen significantly, profitability has ushered in phased challenges

National cement prices have fallen significantly since 2Q22, and the company's cement business will face profit pressure in the short term. As of June 10, the average cement price in the regional market where Huaxin cement is located is 54 yuan / ton lower than that at the end of March, among which the price drop in the eastern region of the company (100 yuan / ton) is significantly larger than that in the central and western regions (36 yuan / ton). We believe that the most fundamental reason for the continued decline in cement prices is weak demand, and the most difficult situation on the demand side may be over. The gradual lifting of epidemic controls, the further enrichment of capital for infrastructure investment and the loosening of restrictive policies in the property sector in more cities are all expected to help stabilise demand. On the supply side, we believe that the companies that maintain the ecology of the industry remain stable in the medium term, and through appropriate readjustment, the industry will be able to better cope with weak demand so far this year.

Aggregate merchants expand rapidly and stabilize the profit fluctuation of cement business.

While the cement business is under pressure, we believe that the rapid growth of the company's aggregate and mixed businesses in recent years will help to better stabilize the overall earnings fluctuations of the company. With the gradual landing of the previously expanded projects, we expect that the compound growth of aggregate / business mixed sales of the company from 2022 to 2023 is expected to reach 73% and 23% respectively, and the gross profit contribution of the company's non-cement business will increase from 34% in 2021 to 57% in 2023. In the medium to long term, we think the company still has plenty of room for growth. Integration (the coordinated development of aggregate, commercial mix, environmental protection, wall materials and cement business) and internationalization (the development of Belt and Road Initiative's national cement market) will be the two pillars for the company to double its revenue in the medium term. Leading development in alternative fuels also helps to gain a better competitive advantage in the company's carbon-neutral era.

Risk hint: real estate policy is stricter than expected, industry competition is weaker than expected.