1H26 results miss our expectations

Anhui Conch Cement announced its 1H26 results: Revenue fell 10.6% YoY to Rmb36.93bn. Attributable net profit fell 42.1% YoY to Rmb2.53bn. In 2Q26, revenue fell 10.7% YoY to about Rmb19.86bn, and attributable net profit fell 58.6% YoY to Rmb1.06bn. The firm's results missed our expectations due to weak demand and pressure on cement prices.

1) Sales volume and prices declined YoY. In 1H26, sales volume of self-produced cement clinker fell 4.0% YoY to 121mnt, better than the -8.0% decline in national output. We estimate that the pertonne selling price of the firm's self-produced products fell about Rmb30/t or 11% YoY to Rmb237/t in 1H26, and cost per tonne was about Rmb184/t (down Rmb12/t or 6% YoY).

2) Cost control effective. Thanks to its technological innovation, application of alternative fuels, and advantages in centralized procurement, the firm's self-produced cement clinker cost fell 6.3% YoY to Rmb163.12/t, effectively offsetting the impact of falling prices on profit.

3) Steady progress in diversified businesses to contribute incremental growth. In 1H26, gross margin of aggregates and manufactured sand fell 3.09ppt YoY to 40.78%, and revenue from commercial concrete rose 1.8% YoY. Overseas projects performed well, with revenue up 21.0% YoY and gross margin up 2.2ppt YoY.

Trends to watch

Diversified businesses advancing; aggregate and overseas businesses create new growth drivers. The firm continues to strengthen its cement business and expand its presence in the upstream and downstream industry chains. In China, the firm is steadily consolidating cement assets of Anhui Wanwei Updated High-Tech Material Industry. The construction of key overseas projects is progressing smoothly, with both sales volume and prices rising, which we expect will make greater contribution to the firm's earnings. In terms of industry chain expansion, in 1H26, four aggregate projects were put into operation, 26 commercial concrete projects were completed, and four new dry-mix mortar and tile adhesive projects came online, continuously improving the “cement plus” industrial ecosystem. We believe diversified businesses will likely contribute incremental earnings.

Ample cash flow; dividend payout mechanism further optimized. Net operating cash flow reached Rmb4.52bn in 1H26, implying a solid financial position. The revised three-year shareholder return plan specifies that cash dividends in 2026–2027 should not be lower than Rmb0.9/sh (tax included), and the current share price corresponds to a guaranteed dividend yield of about 5%, implying a high margin of safety. We anticipate a recovery in valuation.

Financials and valuation

Given weak cement prices and demand in 1H26, we lower our 2026 and 2027 attributable net profit forecasts 31.1% and 34.6% to Rmb6.02bn and Rmb6.32bn. The stock is trading at 15.7x 2026e and 14.9x 2027e P/E for A-shares and 13.4x 2026e and 12.4x 2027e for H-shares. As pessimistic market expectations have been priced in and the firm's earnings are resilient, we maintain an OUTPERFORM rating and cut our A-share TP 17% to Rmb23.5, implying 20.6x 2026e and 19.6x 2027e P/E and offering 31.4% upside. We cut our H-share target price 14% to HK$23.8, implying 18.0x 2026e and 16.6x 2027e P/E and offering 34.5% upside.

Risks

Implementation of “anti-involution” policies and/or demand recovery disappoint.