2024 results miss our expectations

Anhui Conch Cement (Conch Cement) announced its 2024 results: Revenue fell 35% YoY to Rmb91bn, and attributable net profit fell 26% YoY to Rmb7.7bn, with 4Q24 revenue down 46% YoY to Rmb22.9bn and attributable net profit up 42% YoY to Rmb2.5bn, missing our and market expectations. We attribute this to higher-than-expected impairment and expenses in 4Q24.

1) The firm's full-year market share continued to rise, and its sales volume fell slightly in 4Q24, with strong growth in prices and profit per tonne. In 2024, the firm's sales volume of self-produced cement and clinker reached 268mnt (-6% YoY vs. -9.5% YoY for the industry's full-year output). Its full-year ASP for cement and clinker dropped Rmb28 (or 15%) YoY to Rmb246/t thanks to falling coal procurement costs.

The firm’s per-tonne cost of cement and clinker dropped Rmb18 YoY to Rmb187/t (with per-tonne raw material and fuel costs falling Rmb3 and Rmb16 YoY), implying per-tonne gross profit of Rmb59/t, down Rmb10 YoY. In 4Q24, cement sales volume fell 10% YoY to about 73mnt, but ASP per tonne rose Rmb20 YoY to Rmb265/t, and gross profit per tonne increased Rmb20 YoY or Rmb23 QoQ to Rmb75/t.

2) Expenses rose. In 2024, selling expenses fell 0.3% YoY to Rmb3.4bn; G&A expenses rose 5% YoY to Rmb5.9bn, mainly due to a slight increase in compensation cost and safety expenses, implying a Rmb1 YoY rise in full-year expenses per tonne (including Rmb7 YoY growth in 4Q24), resulting in net profit per tonne of Rmb29 (-Rmb10 YoY).

3) Strong operating cash flow; continued reduction in capex. The firm's net operating cash flow fell 8% YoY to about Rmb18.5bn in 2024, maintaining strong ability to collect sales proceeds. The firm's capex was Rmb15.6bn in 2024, with management guiding capex of Rmb12bn in 2025.

4) Excellent balance sheet quality: The firm's liability-to-asset ratio was only 21% at end-2024, and it remains in a net cash position, with a cash dividend ratio of about 48% in 2024.

Trends to watch

Physical workload to recover in peak season; earnings to improve notably in 2025. Given accelerated issuance of special bonds and special bonds for debt resolution in 2H24 and front-loaded fiscal efforts in 1H25, we expect the increased funding to drive higher-than-expected physical workload for infrastructure construction in March-April, and cement demand to recover marginally. Cement demand and prices may beat expectations in 1H25 (the market expects demand to fall 5-10% YoY in 1H25).

Meanwhile, the industry has become increasingly aware of the need to oppose over competition since 3Q24, and the peak-shifting production efforts have paid off. At present, cement prices and inventories are much higher than levels seen a year ago, and coal prices have fallen more than Rmb150/t YoY, which may drive down costs by over Rmb10/t. We expect the firm's earnings to improve significantly YoY in 2025.

Financials and valuation

Given decent cement prices and falling coal prices, we raise our 2025 net profit forecast 18% to Rmb10.8bn and introduce our 2026 attributable net profit forecast of Rmb11.2bn. A-shares are trading at 12x 2025e and 11.7x 2026e P/E, and H-shares are trading at 10.4x 2024e and 9.9x 2025e P/E. We maintain OUTPERFORM ratings for A-shares and H-shares and keep our TPs unchanged, implying 16x 2025e and 15.4x 2026e P/E for A- shares, offering 32% upside, and 12.8x 2025e and 12.2x 2026e P/E for H- shares, offering 23% upside.

Risks

Recovery in demand disappoints; price competition intensifies.