1Q25 results in line with our expectations

Anhui Conch Cement (Conch Cement) announced its 1Q25 results: Revenue fell 11% YoY to Rmb19bn and net profit attributable to shareholders grew 20.5% YoY to Rmb1.8bn, in line with our expectations.

Sales volume grew YoY thanks to solid demand. Data from the

China Cement Association (CCA) shows that China's cement output fell 1.4% YoY in 1Q25, remaining relatively stable. We believe the firm's sales volume in 1Q25 grew by mid-single digits YoY, outperforming the industry average.

Prices remained flat YoY; gross profit per tonne recovered. We

believe the firm's ASP per tonne of cement remained largely flat YoY, but as coal prices also fell sharply YoY in 1Q25, we estimate that its gross profit per tonne may have risen notably YoY (up over Rmb10/t YoY). In 1Q25, gross margin rose 4.8ppt YoY to about 21.6%.

Performance of aggregates remained solid. We estimate that the

firm's aggregate sales volume grew nearly 10% YoY in 1Q25, but gross profit per tonne may have been under pressure due to falling aggregate prices. Gross profit recovered. In 1Q25, gross profit rose 15% YoY to Rmb4.11bn (+Rmb524mn YoY, possibly thanks to improving profit per tonne of cement).

Expense ratio increased, but per-tonne cement expense

remained largely stable. In 1Q25, the firm's selling, G&A, and financial expense ratios were 3.9%, 7.3%, and -0.9%, up 0.6ppt, 1ppt, and 0.3ppt YoY. Expenses per tonne of cement may have remained largely stable YoY at Rmb36/t.

Operating cash flow remained stable. In 1Q25, the firm's net

operating cash flow rose Rmb0.34bn YoY to about Rmb503mn.

Trends to watch Physical workload to recover in peak season; earnings to improve in

2025. Given accelerated issuance of special bonds and special bonds for debt resolution in 2H25 and front-loaded fiscal efforts in 1H25, we expect the increased funding to drive higher-than-expected physical workload for　　infrastructure construction, 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 harm of excessive competition since 3Q24, and the peak-shifting production efforts have paid off. At present, cement prices and inventories are much higher than the levels seen in 2024, and coal prices have fallen more than Rmb150/t YoY, which may reduce costs by over Rmb10/t. We expect the firm's earnings to improve significantly YoY in 2025.

Financials and valuation

We keep our 2025 and 2026e net profit forecasts unchanged. A-shares are trading at 12x 2025e and 11.5x 2026e P/E, and H-shares are trading at 10x 2025e and 9.5x 2026e P/E. We maintain OUTPERFORM ratings for A- and H-shares. We maintain TP of Rmb32.7 for A-shares, implying 16x 2025e and 15.4x 2026e P/E with 34% upside. We maintain TP of HK$27.7 for H-shares, implying 13x 2025e and 12x 2026e P/E with 28% upside.

Risks

Recovery in demand disappoints; price competition intensifies.