HUAXIN CEMENT(600801)：STABLE EARNINGS AT INDUSTRY BOTTOM

　　In 3Q23, Huaxin Cement bucked the trend, and increased by 12.3%/6.9% YoY in revenue/attributable net profit (ANP), which was scarce in the cement sector. Due to a demand off-season and the intensified competition, the per-tonne profit of domestic cement sector is hovering at the bottom. Despite such a gloomy backdrop, the Company still achieved ANP of Rmb680mn with a margin of 8.2% in 3Q23. Huaxin Cement’s earnings resilience was mainly underpinned by its high-margin overseas cement business and aggregate business. We reiterate the “BUY” rating.　　Announcement of 3Q23 results.　　In 9M23, Huaxin Cement posted revenue/ANP/ex-one-off ANP of Rmb24,165mn/1,874mn/1,824mn (+10.79%/-15.75%/-14.44% YoY) respectively. In 3Q23 alone, the Company's revenue/ANP/ex-one-off ANP came in at Rmb8,333mn/682mn/653mn (+12.29%/+6.89%/+9.72% YoY) respectively.　　Revenue continued to grow YoY in 3Q23.　　Although the prices of cement, aggregate and commercial concrete all decreased, Huaxin Cement’s revenue still increased by 12.29% YoY in 3Q23, which as per our judgement, came from the YoY increases in the Company’s sales of cement, aggregate and commercial concrete. The sales of cement increased steadily through overseas mergers and acquisitions (M&As), while the sales of aggregate and commercial concrete grew rapidly on top of rapid production capacity expansion in the early stage.　　QoQ increase in GPM and sustained YoY growth in ANP in 3Q23, reflecting steady earnings at industry bottom.　　In 3Q23, Huaxin Cement’s gross profit margin (GPM) stood at 29.96% (+3.64ppts YoY; +2.59ppts QoQ), making it one of the few companies in the cement sector that saw QoQ increase in GPM. In 3Q23, its ANP increased by 6.89% YoY, which was better than most of its peers. It was also one of the few companies in the cement sector that achieved YoY growth in profits. Due to a demand off-season and intensified competition, the per-tonne profit of China’s cement sector is hovering at the bottom. Despite such a gloomy backdrop, the Company still achieved ANP of Rmb680mn with a margin of 8.2% in 3Q23. Huaxin Cement’s earnings resilience was mainly underpinned by its high-margin overseas cement business and aggregate business. Considering the high per-tonne GPM of overseas cement market, we expect that the per-tonne GPM of the Company’s cement and clinker may buck the trend and achieve QoQ growth in 3Q23.　　Expense ratios rose YoY in 3Q23, mainly due to the increase of R&D expense ratio.　　In 3Q23, Huaxin Cement's overall expense ratio rose by 1.68ppts YoY and 4.53ppts QoQ, which had a certain impact on its net profit margin (NPM). In a breakdown, the selling/administrative/research and development (R&D) /financial expense ratios changed by -0.24ppts/+0.28ppts/+1.11ppts/ +0.53ppts YoY, respectively. Among them, the major increments came from R&D expense ratio, which was possibly resulted from the Company's　strengthening of technological R&D in the fields regarding the carbon peak and carbon neutrality strategy (the “dual carbon goals”), green transformation and digitalization.　　Potential risks:　　A further decline in the demand for housing and infrastructure construction; intensified industry competition; disappointing expansion in the non-cement businesses; slower-than-expected progress in the overseas cement business expansion.　　Investment strategy:　　We believe that domestic cement sector has shown a clear bottom, while Huaxin Cement boasts strong risk resistance and a favorable dividend yield. Considering the prosperity of domestic cement sector and changes in the Company's expense ratios in 3Q23, we lowered our 2023E/24E/25E ANP forecast to Rmb2,794mn/3,086mn/3,452mn (from Rmb3,315mn/3,690mn/ 4,008mn). Taking the valuation midpoint of 1.1x PB of Huaxin Cement’s A-shares since the start of 2023 as a reference, we assign 1.1x 2024E PB to its A-shares and arrive at a target price of Rmb16, and reiterate the "BUY" rating. Considering the the A-/H-shares valuation premium midpoint of 2.0 since the Company’s listing in the Hong Kong Stock Exchange (HKSE), we apply a 2024E A/H-shares valuation premium of 2.0, which corresponds to 0.55x 2024E PB for its H-shares. We initiate coverage with the "BUY" rating and a target price of HK$9. 【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。