1H24 results in line with our expectations
Shangfeng Cement announced its 1H24 results: Revenue fell 25% YoY to Rmb2.39bn and attributable net profit dropped 68% YoY to Rmb171mn. In 2Q24, revenue fell 18% YoY to Rmb1.483bn and attributable net profit dropped 56% YoY to Rmb156mn. The firm's 1H24 results are in line with our expectations.
Sales volume of clinker fell YoY due to declines in demand, but its sales decline was narrower than other peers. China's cement output fell about 10% YoY in 1H24, and the firm's sales volume of clinker fell 6.4% YoY to 9.29mnt due to weak demand. Its sales decline was narrower than peers, indicating resilience in its sales.
Price competition in the industry was fierce; costs dropped substantially due to efficient operation. Due to supply-demand imbalance and fierce price competition in 1H24, we estimate that the ASP of the firm’s clinker fell by Rmb59/t YoY to Rmb221/t. The firm's unit cost fell Rmb38/t YoY in 1H24 thanks to its efforts to improve efficiency and reduce costs and a YoY decline in coal prices. In 1H24, unit gross profit of clinker fell Rmb21/t YoY to about Rmb52/t.
Effective control over expenses per tonne. We estimate that the firm's expenses of the clinker business rose Rmb2/t YoY to about Rmb48 in 1H24, largely stable despite weak demand. Specifically, selling and R&D expenses dropped significantly in 1H24.
Aggregate business maintained high gross margin. In 1H24, the firm's sales volume of sand and gravel aggregates fell 42% YoY to about 3.79mnt, but its ASP and gross profit per tonne in this segment rose Rmb7.5 and Rmb2.6 YoY thanks to improved sales structure. Gross margin of this business remained high at about 64% in 1H24.
Net operating cash flow came under pressure. In 1H24, the firm's net operating cash flow fell 32% YoY to about Rmb384mn.
Equity investment effectively contributed investment income, offsetting downward pressure on main business. In 1H24, the firm's equity investment generated income of about Rmb38.91mn, compensating its earnings amid earnings pressure.
