3Q24 results in line with our expectations

Jidong Cement announced its 1-3Q24 results: Revenue fell 17% YoY to Rmb18.56bn, and attributable net loss narrowed to Rmb297mn from Rmb309mn a year earlier. In 3Q24, revenue fell 7% YoY to Rmb7.34bn, and attributable net profit increased to Rmb509mn from Rmb58mn a year earlier.

The downward pressure on demand remains. Data from the National Bureau of Statistics (NBS) shows that cement output in northern, northeastern and northwestern China fell 6%, 10% and 6% YoY in 3Q24, and the firm's core operating regions still faced significant downward pressure on demand.

Thanks to the recovery of the industry ecosystem, prices in the firm's major operating regions were strong. Data from Digital Cement shows that cement ASP in northern, northeastern and northwestern China rose 7%, 49% and 1% YoY in 3Q24, outperforming most regions in southern China. In particular, cement prices in northeastern China recovered substantially thanks to the implementation of self-disciplined production cuts. We expect this to drive the firm's earnings growth.

Quarterly earnings recovered notably, with gross margin rebounding YoY and QoQ. The firm's 3Q24 attributable net profit rose by Rmb452mn YoY and Rmb217mn QoQ to Rmb509mn. In 3Q24, the firm's gross margin rose 7.1ppt YoY and 4.3ppt QoQ to about 22.7%, and its quarterly gross margin and earnings markedly recovered thanks to recovering cement prices.

Expense ratio rose slightly. In 3Q24, the firm's selling, G&A, R&D, and financial expense ratios changed 0.1ppt, 0.4ppt, -0.1ppt, and -0.1ppt YoY. The overall expense ratio increased slightly.

Operating cash flow declined slightly. In 1-3Q24, the firm's net operating cash flow fell 21.9% YoY to Rmb1.76bn, and in 3Q24, its operating cash flow dropped 27.2% YoY to Rmb929mn.

Trends to watch

The firm's core operating regions feature improving ecosystem and stable prices. We believe the firm mainly operated in northern China. Compared with southern China, cement demand in northern China is　smaller and reached the peak earlier. In addition, northern China has experienced a longer period of demand decline and greater supply-side pressure compared with southern China. Therefore, we believe the firm may have stronger capability to cope with the downward pressure on demand. We believe the coordinated production cuts and price hikes in northern China this year amid weak demand reflect the consistent demand for earnings recovery in the industry. We believe the firm's core operating regions feature improving ecosystem and stable prices.

Financials and valuation

As we adjust our earnings per tonne assumption, we lower our 2024 attributable net profit forecast 80% to Rmb240mn, and introduce 2025 attributable net profit forecast of Rmb521mn. The stock is trading at 28x 2025e P/E. Given the improved market expectations, we maintain an OUTPERFORM rating and only cut our TP 33% to Rmb6.6, implying 34x 2025e P/E and 21% upside.

Risks

Sharper-than-expected decline in demand; fiercer-than-expected price competition.