HUAXIN CEMENT(600801)：MOVES TO EXPAND INTERNATIONAL PRESENCE ADVANCE INTEGRATED DEVELOPMENT PAYING OFF

　　2022 earnings in line with our expectation
　　Huaxin Cement announced its 2022 results: In 2022, the firm’s revenue fell 6.1% YoY to Rmb30.47bn and net profit attributable to shareholders declined 49.7% YoY to Rmb2.7bn. In 4Q22, the firm’s revenue fell 13.5% YoY to Rmb8.66bn and net profit attributable to shareholders dropped 73.7% YoY to Rmb474mn. The firm’s 2022 earnings are in line with our expectation.
　　Cement and clinker sales volume under pressure and fell; price per tonne remained stable but gross profit per tonne dropped. In 2022, the firm's cement and clinker sales volume fell 19.8% YoY to 60.4mnt and ASP per tonne stayed flat YoY at Rmb341 but gross profit per tonne fell Rmb28 YoY to Rmb84. We think that the firm’s domestic product prices remained under pressure but its overseas product prices were relatively high.
　　Integrated development progressing steadily. In 2022, construction aggregate production and sales volumes at Huaxin rose 112% and 88% YoY to 99.80mnt and 65.79mnt, and its commercial concrete sales volume rose 81% YoY to 16.39mn cubic meters. Production and sales volumes of the firm’s non-cement businesses grew rapidly.
　　Expense ratios rose; dividend payout ratio remained stable. The firm's selling, G&A, and financial expense ratios rose 0.4ppt, 0.2ppt, and 1.0ppt YoY in 2022 amid falling sales. The firm pays a cash dividend of Rmb0.51/sh for 2022, implying a dividend payout ratio of about 40% （roughly flat YoY and still at a high level）。
　　Plans for 2023: In 2023, Huaxin plans to sell 57mnt of cement and clinker （down 5.6% YoY）， 130mnt of construction aggregate （up 97.6% YoY）， and 25mn cubic meters of concrete （up 52.5% YoY）。 The firm’s plans for capex of Rmb11bn, and it plans to focus capex on building production capacity for construction aggregate and concrete, and expanding environmental protection, new materials, and the overseas businesses.
　　Trends to watch
　　To expand international presence and advance integrated development fueling growth in the medium-to-long term. In 2022, revenue from overseas factories rose 62.3% YoY to Rmb4.19bn with EBITDA （based on actual foreign exchange rates） exceeding Rmb1.4bn （up 40% YoY）。 On March 13, Huaxin announced that it would start expanding its presence in Oman, and we believe that the overseas businesses will continue to generate significant profits. As for domestic businesses, the firm put 20 construction aggregate production lines into operation in 2022, and its annual construction aggregate production capacity has reached 210mnt. We are optimistic that the construction aggregate business will maintain rapid production and sales growth and high gross margins, which we think will generate significant incremental earnings. We are upbeat on the firm’s growth potential in the medium-to-long term thanks to its overseas expansion and integrated development along the industry value chain.
　　Industry recovery to support recovery of product sales volume and prices. Data from dcement.com and sci99.com shows that cement shipment rates in central China averaged about 43% in 1Q23 （up 3ppt YoY）， and clinker and cement warehouse utilization ratios were low at 51% and 51%. Cement prices are rising steadily. In 2023, we expect cement demand to grow steadily amid a possible narrowing decline in demand from the real estate industry and accelerated construction of physical infrastructure projects. We believe that this will facilitate recovery of the cement industry, better match supply and demand, and support recovery of the firm’s product sales volume, prices, and earnings.
　　Financials and valuation
　　As we raise our assumptions for the firm’s sales volume and earnings per tonne due to overseas businesses’ growing contribution to the firm’s earnings and continuous growth of the firm’s non-cement businesses, we raise our forecasts for the firm’s 2023 and 2024 net profit attributable to shareholders by 8.2% and 9.8% to Rmb4.0bn and Rmb4.6bn. The stock is trading at 8.2x 2023e and 7.1x 2024e P/E. We maintain OUTPERFORM and keep our target price at Rmb21.2 （implying 11.1x 2023e and 9.7x 2024e P/E）， offering 36% upside.
　　Risks
　　Disappointing demand recovery and/or progress in overseas businesses.
【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。