\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 801 Huaxin Cement Co.Ltd(600801) )
Century old cement brand, performance growth through the cycle
Hubei cement plant, the predecessor of the company, was founded in 1907. It is one of the earliest cement plants in modern China and is known as “the cradle of China’s cement industry”; The “Huaxin fortress” trademark owned by the company is a well-known trademark in China and one of the oldest cement production trademarks in China. After years of development, the company has an advantageous position in Central China and has become a major practitioner in Southwest China, enjoying high popularity and recognition in the industry. By the end of 2021, the company has more than 270 subsidiaries in 14 provinces and cities including Hubei, Hunan, Yunnan, Chongqing and Sichuan, Tajikistan, Kyrgyzstan and other eight overseas countries, with a cement production capacity of 116 million tons / year (grinding capacity, including the production capacity of associated enterprises). In 2021, the company achieved an operating revenue of 32.464 billion yuan, a year-on-year increase of 10.59%; The net profit attributable to the parent company was 5.364 billion yuan, a year-on-year decrease of 4.74%; Affected by the sharp rise in the price of main fuels such as power coal, the company’s profit in 2021 is slightly under pressure; The gross profit margin and net profit of sales were 35.29% / 17.88% respectively, with a year-on-year decrease of 4.46/3.15pct respectively. The company’s revenue and performance growth are better than the overall level of the industry and has the strength to cross the cycle.
During the “14th five year plan” period, capital expenditure increased sharply and expanded in both regions and businesses
1) the main business of cement is expanding overseas. As one of the first batch of “going global” Chinese cement enterprises, the company has achieved capacity expansion in eight countries in Central Asia, Southeast Asia and Africa. Especially in Central Asia along the “the Belt and Road”, the company has become a leader in the local cement market. By the end of 2021, the company’s cement clinker production capacity that has been completed and put into operation overseas ranks second in China; The cement clinker capacity under construction overseas ranks fifth in China. On March 28, 2022, the company converted B shares into H shares and was listed on the Hong Kong stock exchange, providing a broader platform for the development of the company’s internationalization strategy department. 2) Vertical development of the industrial chain. Based on the main cement business, the company is looking forward to the transformation and integration of the cement industrial chain. In 2021, the company will accelerate the construction of business capacity in aggregate, wall materials, concrete, engineering and equipment, packaging, grinding aids, environmental protection and so on; Capital expenditure (calculated by cash paid for the purchase and construction of fixed intangible long-term assets) was 6.229 billion yuan, a significant year-on-year increase of 73.54%; In 2022, the company plans to invest 12.2 billion yuan in aggregate, overseas cement and integration business, and plans to further increase capital expenditure.
Main business of cement: Lianghu cement market has strong toughness, and the marginal improvement of Yunnan can be expected
The core market areas of the company are Lianghu and Yunnan; The company has a leading market share in the two lakes cement market. In 2021, the company’s cement production capacity in Hubei and Hunan accounted for 36.8% / 8.9% of the whole province respectively. The company is expected to occupy a strong pricing power in the two lake cement market with its high market share and long-term established mature sales network. The concentration of Yunnan cement market is relatively low. In 2021, the Cr5 of Yunnan cement production capacity was about 58.5%, which still has room for improvement compared with the concentration of nearly 80% between the two lakes. The company’s production line layout in Yunnan is mainly concentrated in the central and northwest regions with relatively convenient logistics infrastructure, which lays a foundation for the company to continue to explore the cement market in Yunnan and improve the market share.
There are abundant limestone resources along the Yangtze River. By the end of 2021, the total reserves of limestone and sand shale resources for which the company has obtained the mining license are about 3.6 billion tons. Most of the ore is directly transported to the lime production base through the lime production line built by the company. The self-sufficiency rate of limestone of the company exceeds 95%, and the cost of raw materials per ton of cement and clinker of the company is significantly lower than that of the same industry.
Non cement business: accelerating growth and contributing flexibility
In terms of aggregate business, since 2019, the company has strategically utilized the window period of structural adjustment and upgrading of the aggregate industry to accelerate the layout of aggregate production capacity; By the end of 2021, the aggregate production capacity of the company had increased to 154 million tons, and the average annual compound growth rate of aggregate production capacity from 2018 to 2021 exceeded 57%. At present, the company’s Yangxin 100 million ton machine-made sand project and other 10 aggregate projects under construction are steadily advancing. After all of them are put into operation, the aggregate production capacity of the company can reach 270 million tons / year. In 2021, the gross profit margin of the company’s aggregate business was 65.62%, with a year-on-year increase of 3.03pct; The average sales price of aggregate was about 59 yuan / ton, with a year-on-year increase of 14.4%; The gross profit per ton of aggregate was about 38.5 yuan / ton, with a year-on-year increase of 19.9%. With the continuous and large-scale aggregate business of the company, it will drive the profitability of the company and boost the performance elasticity. In terms of concrete business, the company invests in the construction of concrete mixing plant around the existing cement clinker production line, gives full play to the synergy advantages, and shares channels and customer resources with the main cement industry. By the end of 2021, the company has arranged concrete mixing plants in 10 provinces and cities including Hubei, Hunan, Yunnan, Sichuan, Chongqing, Tibet, Henan, Guizhou, Jiangxi and Jiangsu and Cambodia, with a concrete production capacity of 43.8 million cubic meters. In 2021, the company’s concrete sales volume reached 9.05 million m3, a year-on-year increase of 96.49%.
Investment advice
The company is the leader of cement in central and southwest China. Under the background of “steady growth”, the regional prosperity is expected to rise. At the same time, the company expanded in both business and regional dimensions, and the rapid development of aggregate and concrete business and overseas market gave the company higher flexibility. In addition, the dividend yield and cash dividend ratio of the company are at a high level among the major comparable companies in the industry. We estimate that the net profit attributable to the parent company from 2022 to 2024 will be 6.105/7.074/8.012 billion yuan respectively, with a year-on-year increase of 13.8% / 15.9% / 13.3% respectively, and the corresponding EPS will be 2.91/3.37/3.82 yuan respectively. For the first time, give a “buy” rating.
Risk tips
Risks of macroeconomic downturn and sharp decline in the growth rate of infrastructure and real estate investment; Risk of sharp fluctuations in the prices of raw materials and fuels; The optimization of supply side pattern of cement industry is less than expected; Aggregate and overseas business expansion were less than expected.
