Date of Report: October 29, 2024
Broker: UOB Kay Hian
Company Overview
China Resources Building Materials Technology, traded under ticker 1313 HK, is a major player in the production, distribution, and sale of cement, clinker, concrete, and aggregates in China. The company operates under the Materials sector according to the GICS classification.
Stock Performance & Shareholder Structure
- Current Share Price: HK$2.02
- Target Price: HK$2.30, indicating an upside potential of +13.9% from the current price.
- 52-Week Range: HK$1.01 – HK$2.31
- Market Capitalization: HK$14,105.5 million (US$1,814.9 million)
- Average 3-Month Daily Turnover: US$4.0 million
- Major Shareholder: China Resources National Corporation, holding 73.3%.
3Q24 Financial Results and Key Performance Indicators
The company reported 9M24 earnings of RMB308.6 million, representing a year-over-year decline of 51.6%, below market expectations. The slowdown in sales volume and revenue is largely attributed to strategic shifts prioritizing profitability over market share in cement sales.
Revenue and Gross Profit Breakdown
- Total Revenue (9M24): RMB15,774.6 million (-13.1% YoY)
- Cement: RMB10,115 million (-23.4% YoY)
- Clinker: RMB304 million (-31.5% YoY)
- Concrete: RMB2,772 million (+17.5% YoY)
- Aggregates: RMB1,678 million (+70% YoY)
- Gross Margin: 15.2%, a slight decline from 15.5% in the previous year, with an expansion in cement product gross margin to 12.6%.
Strategic and Operational Shifts
China Resources Building Materials Tech pivoted its approach in 3Q24, moving away from market share acquisition towards profitability, especially within the cement segment. This resulted in a 3Q24 cement sales volume drop of 16.2% YoY. The company’s new guidance for FY24 cement sales volume has been adjusted downward to 63 million tonnes from an earlier projection of 65 million tonnes.
Segment Revenue Contributions and Infrastructure Demand
- Cement and clinker’s contribution to revenue fell to 66.0% (from 75.2% in 9M23).
- Concrete and aggregates saw a balanced increase in their revenue share, indicating a diversification in revenue streams.
- Infrastructure Projects remained the primary driver of cement demand, contributing to 55.7% of sales, an increase of 3% YoY.
Regional Infrastructure Investments and Demand Outlook
- Guangdong: Infrastructure demand remains strong, driven by transportation and urban village renovation projects, despite a 21% decline in tender volumes YoY.
- Guangxi: Infrastructure investments are limited due to ongoing debt restructuring at the local government level, with tender volumes down by 37% YoY.
Cement Pricing Trends and Future Outlook
After reaching a low point in 2Q24, cement prices began rebounding in 3Q24 with an ASP (average selling price) of RMB237 per tonne. The company expects further ASP improvements in Guangdong in 4Q24 due to seasonal factors limiting the outflow of cement from Guangxi. Additionally, overcapacity policies anticipated in the sector may bring stability to production levels.
Earnings and Valuation
- Revised Earnings Forecasts: UOB Kay Hian adjusted earnings forecasts for the company by -16.6% for 2024, with positive revisions for 2025 (+3.5%) and 2026 (+4.5%).
- Valuation: The company remains a “BUY” with a valuation target of HK$2.30, pegged at 0.3x 2024F Price-to-Book (P/B).
Risks and Future Catalysts
- Risks: Debt restructuring and fiscal reforms in less economically developed regions may delay infrastructure demand, which could impact the company’s growth trajectory.
- Catalysts: Potential inclusion in the carbon trading market and an acceleration in infrastructure construction activities could enhance profitability and stabilize revenue growth.
This overview provides a structured insight into China Resources Building Materials Tech’s current performance, strategic pivots, and financial expectations as of October 29, 2024.
