ANHUI CONCH CEMENT(600585)：DIVIDEND PAYOUT RATIO HITS NEW HIGH;WATCH RECOVERY AND PEAK-SEASON UPSIDE

　　2022 results in line with our expectations
　　Anhui Conch Cement （ACC） announced 2022 results: Revenue fell 21.4% YoY to Rmb132.02bn, and attributable net profit declined 52.4% YoY to Rmb15.86bn. In 4Q22, revenue rose 1% YoY to Rmb46.69bn and net profit attributable to shareholders fell 70.2% YoY to Rmb3.24bn. The firm's 2022 results are in line with our expectations.
　　Sales volume falling; prices and per-tonne earnings under pressure. In 2022, the firm's sales volume of self-produced cement and clinker fell 7% YoY to about 283mnt, and ASP fell Rmb39/t or 11% YoY to Rmb321/t. Gross profit per tonne dropped Rmb66/t or 42% YoY to Rmb91/t, and attributable net profit of cement and clinker per tonne declined Rmb54/t or 49% YoY to Rmb55/t.
　　Effective cost reduction and expense control. Excluding the impact of fuel and power costs, the firm's all-in cost of cement and clinker fell Rmb4.70/t YoY in 2022. The firm’s expenses for cement and clinker rose Rmb2/t YoY to Rmb26/t.
　　Capex rising markedly; firm focuses on medium-to-long-term investment. In 2022, the firm's net operating cash flow was Rmb9.65bn. Its capex rose 49% YoY to about Rmb23.9bn, mainly due to investments in mining rights, project construction and M&As.
　　Dividend payout ratio rising notably. The firm proposed a cash dividend of Rmb1.48/sh for 2022, raising its dividend payout ratio to 50% from 38% in 2021, with a dividend yield of about 7% for 2023 （H-shares）。
　　Firm’s guidance for 2023 sees production growth in cement, clinker: The firm aims to sell 307mnt of self-produced cement and clinker in 2023 （up 8.5% YoY）， and expects both cost and expenses per tonne to remain stable. The firm has panned a capex of Rmb19.32bn in 2023 （down 19% YoY）， and continues to focus on project construction, technological upgrading of production lines, and M&A. It plans to increase the production capacity of aggregate （a building material） by 40.2mnt to about 148mnt in 2023.
　　Trends to watch
　　Demand in core markets recovering steadily; upbeat on recovery in fundamentals. Dcement.com data shows that at end-March, the 1Q23 cement shipment ratio in China’s east and south grew 1ppt and 7ppt YoY, and fell 1ppt in China’s southwest. Since the Chinese New Year holiday, we think cement demand has seen a steady seasonal recovery and the supply-side ecosystem remains sound. Although per-tonne earnings may remain under pressure YoY due to lower prices, in the firm's biggest markets, we think cement prices are recovering.
　　In 2023, we expect demand for cement to improve, supported by a narrowing decline in real estate demand and increased infrastructure construction workload. We think the industry may see a moderate recovery in fundamentals in 2023, conducive to a boost in the firm's earnings.
　　ACC has strong competitive advantages; watch opportunities for valuation rebound amid recovery in fundamentals. We believe the firm's fundamentals may have begun to turn around. The firm enjoys solid advantages in cost and efficiency, given its regional layout of production lines, and we expect earnings upside in the peak season. The firm's H-shares are trading at 0.6x P/B, a 30% discount to valuations during the previous trough in early-2016. Considering the high margin of safety in valuations, we foresee opportunities for a recovery of valuation amid rebounding sector fundamentals.
　　Financials and valuation
　　We raise our attributable net profit forecast for 2023 by 12.7% to Rmb17.5bn, and for 2024 by 14.8% to Rmb19.6bn. A-shares are trading at 8.5x 2023e and 7.6x 2024e P/E, and H-shares are trading at 6.8x 2023e and 5.9x 2024e P/E.
　　We maintain OUTPERFORM ratings and our target prices for A- and H-shares. Our A-share TP is Rmb35.20 （10.7x 2023e and 9.5x 2024e P/E, with 25% upside）。 Our H-share TP of HK$30.10 （7.7x 2023e and 6.7x 2024e P/E, with 13% upside）。
　　Risks
　　Disappointing demand recovery; sharper-than-expected rise in costs.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。