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Jidong Cement has announced a draft restricted stock incentive plan for 2026-2028.

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Draft three-year equity incentive plan unveiled; multi-dimensional performance targets indicate determination to achieve high-quality development. The firm plans to grant 26.58mn restricted shares (1.00% of total shares) to 245 senior executives and key employees. Meanwhile, it has set performance targets for the equity incentive plan in three phases over 2026-2028, requiring six indicators (e.g., EOE [EBITDA divided by average net assets], growth rate of recurring net profit attributable to shareholders, and labor productivity of all employees) to meet the targets.

The performance targets are: In 2026, 2027, and 2028, the firm’s EOE must be at least 16.5%, 17.7%, and 18.65%; and the growth rates of its recurring net profit attributable to shareholders must be at least 145%, 172%, and 199% compared with that in 2024 and must not be lower than industry averages. In addition to net profit, the firm also places emphasis on cash returns, and it requires labor productivity and fuel substitution rate to increase, carbon dioxide emissions per tonne of clinker to decline, and the number of patents to grow over the three years. We think these targets indicate the firm’s determination to achieve high-quality and green development.

Performance targets for equity inventive plan imply substantial earnings growth compared with 2024, showing the firm’s confidence in earnings improvement. The firm’s performance targets for the equity incentive plan imply that its recurring net profit attributable to shareholders must be at least Rmb496mn in 2026, Rmb793mn in 2027, and Rmb1,091mn in 2028, substantial increases compared with the 2024 level (assuming a loss of about Rmb1.1bn in 2024). The firm has also set aggressive EBITDA targets. Based on its EOE performance targets, the firm’s EBITDA needs to reach Rmb4,564mn in 2026, Rmb4,896mn in 2027, and Rmb5,157mn in 2028 (vs. EBITDA of Rmb3,474mn in 2024), reflecting the firm’s emphasis on cash flow and asset return capabilities.

Earnings to improve YoY in 2Q25; regional consolidation efforts to improve efficiency. Data from dcement.com indicates that average　cement prices in the Beijing-Tianjin-Hebei market, the northwestern China market, and the northeastern China market (major regional markets for Jidong Cement) stand at Rmb408/t (+Rmb11/t YoY), Rmb384/t (-Rmb2/t YoY), and Rmb454/t (+Rmb37/t YoY) in 2Q25. In terms of costs, Qinhuangdao Q5500 thermal coal price is currently below Rmb650/t, more than Rmb200/t lower than the average price in 2Q24. Therefore, we expect the coal cost of cement per tonne in 2Q25 to be more than Rmb15/t lower than a year ago, and we expect Jidong Cement’s net profit to improve markedly YoY in 2Q25.

The firm has acquired an overseas cement company, making a breakthrough in expanding its overseas presence. Meanwhile, the firm has completed the acquisitions of Shuangyashan Cement (clinker production capacity of 1.55mnt) and Hengwei Cement (production capacity of 1mnt) in northeastern China, enhancing its pricing power. Moreover, the firm has strived to expand production capacity for construction aggregates and concrete (increasing by 11.7mnt and 7.35mn cubic meters in 2024). We think such efforts could help the firm improve synergies and efficiency in the industry chain.

Financials and valuation

We keep our 2025 and 2026 net profit forecasts at Rmb818mn and Rmb1,210mn. The stock is trading at 15.2x 2025e and 10.3x 2026e P/E. We maintain our OUTPERFORM rating and target price of Rmb6.6, implying 21.4x 2025e and 14.5x 2026e P/E, offering 41% upside.

Risks

Recovery in demand disappoints; price competition intensifies.