Conch Cement, a leader in the cement industry (600585. SH) handed over a report card of "increasing income but not increasing profits": in 2023, it will achieve operating income of 140.999 billion yuan, a year-on-year increase of 6.8%, and a net profit attributable to the parent company of 10.43 billion yuan, a year-on-year decrease of 33.4%.
Behind the pressure on profits, the main reason is that the downturn in the real estate market has dragged down the demand for cement, and the imbalance between supply and demand has caused companies to be involved in price wars.
On the afternoon of April 15, Conch Cement held a performance briefing, and the company's management responded to the market's concerns about whether cement prices will pick up this year and where are the new profit growth points.
Cement production is the lowest in nearly 12 years
In 2023, the national cement output will be 2.023 billion tons, down 0.7% year-on-year, the lowest level in the same period in the past 12 years. The cement market demand is insufficient, but the total production capacity is at a high level, the contradiction between supply and demand has further intensified, and the cement price has fallen sharply year-on-year and generally showed a trend of high and low, shock adjustment. In addition, affected by factors such as high coal prices and increased pressure on environmental protection and consumption reduction, cement production costs remain high, and industry efficiency continues to decline.
Last year, the national economy rebounded for the better, infrastructure investment maintained steady growth, but the real estate industry entered a stage of deep adjustment, according to comparable calculations, the national fixed asset investment increased by 3% year-on-year, infrastructure investment increased by 5.9% year-on-year, and real estate investment decreased by 9.6% year-on-year. The downturn in the real estate market has dragged down cement demand.
Conch Cement said that during the reporting period, the increase in revenue was mainly due to the increase in non-core business income, which was due to the increase in the Group's trade revenue compared with the same period last year in order to make full use of the bulk material supply and marketing channels to serve customers.
Conch Cement's main business is the production and sales of cement, commercial clinker, aggregates and concrete. According to market demand, Conch Cement's cement varieties mainly include 32.5 grade cement, 42.5 grade cement and 52.5 grade cement, which are widely used in national large-scale infrastructure construction projects such as railways, highways, airports and water conservancy projects, as well as urban real estate development, cement products and rural markets.
During the reporting period, the gross profit margin of 42.5-grade cement and clinker of Conch Cement decreased by 1.35 percentage points and 8.6 percentage points year-on-year respectively, and the gross profit margin of 32.5-grade cement increased by 2.66 percentage points year-on-year, of which the gross profit margin of 42.5-grade cement and clinker of the Group's self-products decreased by 3.2 percentage points and 10.51 percentage points year-on-year respectively, and the gross profit margin of 32.5-grade cement increased by 1.18 percentage points year-on-year. The comprehensive gross profit margin of aggregate and manufactured sand was 48.32%, down 11.98 percentage points year-on-year, and the comprehensive gross profit margin of commercial concrete was 11.00%, down 3.56 percentage points year-on-year.
According to the sales area, the sales amount of self-products in various regions of China have decreased by different ranges. Among them, the sales amount in the eastern and southern regions decreased by 13.26% and 11.48% year-on-year respectively, and the gross profit margin decreased by 5.85 percentage points and 0.16 percentage points year-on-year respectively, while the sales amount in the central and western regions decreased by 11.3% and 16.33% year-on-year respectively, and the gross profit margin decreased by 3.67 percentage points and 2.08 percentage points year-on-year respectively.
The industry is in a state of "cold".
In 2023, the cement industry in mainland China will generally show a state of "coldness", and insufficient demand, weakening expectations, and overcapacity have become industry consensus. Demand is insufficient but overcapacity, and the cement industry is embroiled in a price war.
A set of data shows that from the perspective of cement price trends, since hitting a record high in October 2021, the average price pivot has continued to move downward, and the price trend in 2023 will be fully revealed, continuing to be lower than the level of the same period in 2022, and falling to the lowest level in nearly five years in September. According to data from the digital cement network, the average price of cement in China in 2023 will be 394 yuan/ton, a sharp decrease of 15.3% year-on-year.
According to data from China Cement Network, in 2023, the national cement price index (CEMPI) will fall by 20% during the year, and the total profit of enterprises in the whole industry will be 32 billion yuan, a year-on-year decrease of more than 50%, the lowest level in nearly 16 years.
In this context, the annual earnings performance of listed companies in the industry is mostly declining, and some companies will turn from profit to loss in 2023. Tianshan Co., Ltd. (000877. SZ) achieved revenue of 107.38 billion yuan, down 19.01% year-on-year, and net profit attributable to the parent company was 1.965 billion yuan, down 56.74% year-on-year 000401; SZ) achieved operating income of 28.235 billion yuan, a year-on-year decrease of 18.26%, and a net profit attributable to the parent company of -1.498 billion yuan, a year-on-year change from profit to loss.
In 2024, with the continuous development of infrastructure to bring about a recovery in demand, as well as the rigid support of the cost side, the upward revision of cement prices is expected to drive the improvement of industry profits, but the contradiction between supply and demand in the industry will restrict the space for profit repair. It is expected that the recovery of the demand side of the cement industry will be limited in 2024, and the serious imbalance between supply and demand will still restrict the sharp rise in prices, but the average price is expected to rise throughout the year, but high costs will continue to erode the profit margins of the cement industry.
On the afternoon of April 15, Li Qunfeng, executive director and general manager of Conch Cement, said at the performance briefing that after the cement industry has experienced market competition, its business strategy tends to be rational, and enterprises have a strong willingness to increase off-peak productivity and stabilize the market, and it is expected that cement prices will continue to fluctuate in 2024.
Li Qunfeng mentioned that the company will make every effort to promote the development of the aggregate industry and production capacity based on the main cement business, promote the layout of the commercial mixed industry, and create new profit growth points.
Conch Cement's annual report disclosed that 12 aggregate projects such as Wuhu Jianke and Shuangfeng Building Materials were successfully put into operation, and 14 new commercial concrete projects in operation were actively added through new construction, mergers and acquisitions and leasing.
In 2024, Conch Cement plans to spend 15.2 billion yuan on capital expenditure, mainly with its own funds, which will be mainly used for project construction, energy conservation and environmental protection, technological transformation and mergers and acquisitions. It is estimated that the annual clinker production capacity will be 3.9 million tons, cement production capacity will be 8.4 million tons, aggregate production capacity will be 25.5 million tons, and commercial concrete production capacity will be 7.2 million cubic meters.
In the record of investor relations activities disclosed by Huaxin Cement a few days ago, Li Yeqing, director and president of the company, said that as more large cement and aggregate enterprises enter the field of commercial mixing, the concentration of the commercial mixing industry will become higher and higher, including the control of business models, especially accounts receivable, will continue to improve. From this point of view, Li Yeqing believes that aggregates and commercial mixing are still an industry that can be expected.
Cement companies accelerate their "going to sea"
Conch Cement, which has increased revenue but not profits, will perform well in its overseas business in 2023.
According to the data, Conch Cement's export sales in 2023 will increase by 117.83% year-on-year, and the sales amount will increase by 92.53% year-on-year. With the continuous improvement of the overseas project sales market network, the sales volume of Conch Cement's overseas projects increased by 13.91% year-on-year, and the sales amount increased by 17.75% year-on-year.
Under the background of overcapacity and declining profits, cement companies have accelerated their "going to sea" and have good benefits. For example, in 2023, Huaxin Cement's overseas revenue will be 5.439 billion yuan, a year-on-year increase of 30%.
Tianfeng Securities said that in 2023, the speed of mainland cement going to sea will be significantly accelerated, mainly because the inflection point of domestic demand has appeared, the pressure of overcapacity continues to increase, and the profit center continues to move downward, forcing leading enterprises with expansion strength to accelerate the pace of going to sea.
Zhou Xiaochuan, executive director and secretary of the board of directors of Conch Cement, said that in recent years, due to the intensification of domestic overcapacity and the decline of industry efficiency, Chinese cement enterprises have been promoted to expand overseas, and advanced technology, rich industry experience and perfect management have made Chinese cement enterprises have a certain competitiveness in going to sea. In Zhou Xiaochuan's view, the internationalization strategy is one of the strategies that the company has always adhered to, due to the different business environment and competition pattern of overseas countries, risks and opportunities coexist, the company will take the "Belt and Road" as the main line, strengthen risk identification and control, explore trade, mergers and acquisitions, new construction and other diversified development methods, further improve the market layout of existing investment countries, and steadily promote the development of the international blank market.
Zhou Xiaochuan said at the performance briefing that the cement clinker production line projects of the company's Cambodian Phnom Penh Conch and Uzbekistan Shangfeng Friendship Company will be completed and put into operation in 2024. In recent years, the performance of overseas projects has grown steadily, and the contribution to the company's efficiency has continued to increase. (This article was first published in Titanium Media APP, author|Liu Fengru)