3Q25 results slightly miss our expectations

Anhui Conch Cement announced its 1-3Q25 results: Revenue fell 10% YoY to Rmb61.3bn, and net profit attributable to shareholders grew 21% YoY to Rmb6.3bn. In 3Q25, revenue fell 11% YoY to Rmb20.01bn, and net profit attributable to shareholders grew 3.4% YoY to Rmb1.94bn. The firm's results slightly missed our expectations, mainly due to disappointing price hikes in the 3Q25 peak season in eastern China.

1) Cement sales volume showed strong resilience in slack

season. According to the National Bureau of Statistics, China's cement output fell 5.2% YoY over 9M25, and dropped 7% YoY in 3Q25. According to dcement.com, cement shipment rates fell 5ppt and 1ppt YoY in eastern China and southern China in 3Q25.

As an industry leader, the firm’s cement sales volume may be relatively resilient, and we project the decline in its cement sales volume was milder than the industry average in 3Q25.

2) Weak cement prices and YoY decline in coal prices bolstered gross profit per tonne. Data from dcement.com

shows that cement ASP in eastern and southern China fell 10% and 13% QoQ in 3Q25, and we believe the firm's cement ASP remained under pressure in 3Q25. In 3Q25, gross margin rose 1.7ppt YoY and declined 4.5ppt QoQ to 21.5%. Considering coal prices remained weak (ASP of thermal coal in Shanxi fell 21% YoY in 3Q25), we believe the firm's gross profit per tonne remained largely unchanged YoY in 3Q25.

3) Expenses per tonne may have declined. In 3Q25, the firm's

four expense items fell 13% YoY to Rmb2.12bn, and its expense ratio dropped 0.1ppt YoY to 10.6%. We believe that the decline in cement sales volume might be much smaller than the decline in expenses, and that the firm's expenses per tonne declined YoY in 3Q25.

4) Capex increased marginally. In 1-3Q25, cumulative net

operating cash flow rose 7% YoY to Rmb11.1bn, cumulative capex reached Rmb6.5bn, and free cash flow remained abundant at Rmb4.6bn.

Trends to watch We suggest keeping an eye on price hikes, and we expect the competitive landscape to improve thanks to anti-

involution measures. Data from dcement.com shows that China's cement ASP rose 2% YoY in October vs. 3Q25. We expect off-peak production suspension and well-coordinated price hikes to bolster the firm's earnings. In addition, we are upbeat on the optimization of the industry landscape, driven by strengthened implementation of restrictions on overcapacity, and we expect the firm to continue to benefit as an industry leader.

Financials and valuation

Given the pressure on cement demand, we cut our 2025e and 2026e net profit forecasts by 10% and 5% to Rmb8.7bn and Rmb10bn. The stock is trading at 14x 2025e and 12x 2026e for A-shares and 13x 2025e and 11x 2026e for H-shares. We maintain an OUTPERFORM rating and cut our A-share TP by 5% to Rmb28.3, implying 17x 2025e and 15x 2026e P/E and offering 21% upside. Considering the marginal improvement in liquidity conditions in the H-share market and possible slight increase in the average valuation of H-shares, we keep our H-share target price unchanged at HK$27.7, corresponding to 16x 2025e and 13x 2026e P/E and offering 16% upside.

Risks

Implementation of anti-involution policies and/or price hikes in peak season disappoint.