1H25 results largely in line with our expectations

Anhui Conch Cement (Conch Cement) announced its 1H25 results: Revenue fell 9.4% YoY to Rmb41.3bn. Attributable net profit rose 31.3% YoY to Rmb4.37bn. In 2Q25, revenue fell 8.2% YoY to Rmb22.24bn and net profit attributable to shareholders rose 40.3% YoY to Rmb2.56bn. The firm’s 1H25 results were largely in line with our expectations.

Trends to watch

YoY decline in firm's cement and clinker sales volume much milder than industry average. The firm disclosed that sales volume of its self- produced cement and clinker fell only 0.35% YoY to 126mnt in 1H25, while cement output fell 4.3% YoY to 815mnt in 6M25 in China. We note that the YoY decline in the firm's cement and clinker sales volume was much milder than industry average.

Gross profit per tonne of cement and clinker recovers YoY and QoQ. We estimate that the unit price of the firm's self-produced cement and clinker rose Rmb4 YoY to Rmb244 in 1H25, and the unit cost fell Rmb13 YoY to Rmb174. Specifically, its unit fuel cost fell Rmb15 YoY, possibly due to falling coal prices. On a quarterly basis, we estimate gross profit per tonne of the firm's self-produced cement and clinker may rise over Rmb20 YoY and about Rmb9 QoQ in 2Q25.

Signs Xinjiang project for cement business; optimizes production line operation overseas. In 1H25, the firm signed the Xinjiang Yaobai cement project, further expanding its regional presence. Its overseas projects are progressing steadily, such as the acquisition of West Papua Conch to improve the firm's competitiveness in Indonesia, and the completion and operation of a production line in Phnom Penh, Cambodia. The firm's overseas sales volume of cement and clinker rose 20.4% YoY in 1H25.

Revenue from aggregates and manufactured sand falls slightly, with gross margin down YoY. In 1H25, revenue from aggregates and manufactured sand fell 3.6% YoY to wRmb2.1bn, with gross margin down 3.97ppt YoY to 43.87%. Despite intensifying competition in the aggregate industry, which in turn affected product prices, we think the firm's profitability　　remained high thanks to its resource advantages.

Expense ratios remain stable YoY. In 1H25, the firm's expense ratio rose 0.6ppt YoY and fell 1ppt HoH to 10.2%, with G&A expense ratio rising 1.5ppt YoY and falling 0.2ppt HoH to 7.1%, and financial expense ratio falling 0.7ppt YoY and 0.5ppt HoH to -1.4%.

The firm announced its interim profit distribution plan with ample cash on hand. In 1H25, net operating cash flow reached Rmb8.3bn (vs. Rmb6.9bn in 1H24). Its capex reached Rmb6.2bn (vs. Rmb7.7bn in 1H24) with stronger free cash flow in 1H25. As of end-1H25, the firm had Rmb62.7bn on hand. The firm announced an interim profit distribution plan, proposing a cash dividend of Rmb0.24 (tax included) to all shareholders, accounting for 29% of its 1H25 attributable net profit.

Financials and valuation

Considering the rising marginal pressure on industry supply and demand, as well as off-peak kiln shutdowns being less intensive than our expectations, which may weigh on the firm’s earnings, we cut our 2025 and 2026 EPS forecasts 11% and 7% to Rmb1.81 and 1.98. A-shares are trading at 14x 2025e and 13x 2026e P/E, and H-shares at 12x 2025e and 11x 2026e P/E. We maintain OUTPERFORM but cut our A-share TP 9% to Rmb29.7, implying 16x 2025e and 15x 2026e P/E with 20% upside. Given rising risk appetite in the H-share market, we keep our H-share TP unchanged at HK$27.7, implying 14x 2025e and 13x 2026e P/E with 15% upside.

Risks

Disappointing implementation of anti-involution policies and/or demand recovery; price hikes in peak season disappoint.