2024 results in line with market consensus; 1Q25 beat

In 2024, the firm's revenue was nearly Rmb5.45bn (-14.8% YoY), and its attributable net profit fell 15.7% YoY to Rmb627mn, in line with market consensus; in 1Q25, revenue rose 4.6% YoY to Rmb951mn, and attributable net profit grew 447.6% YoY to Rmb79.93mn, beating market consensus, mainly due to the steepening of quarterly earnings recovery amid recovering demand and falling costs.

Cement business: Sales volume and prices bottoming out; cost control strong. In 2024, sales volume of cement and clinker totaled about 20.75mn tonnes (-3.3% YoY), ASP fell 8% YoY to Rmb262/t, and gross profit per tonne fell Rmb5 YoY to Rmb55/t. The firm's aggregate production in 2024 fell 27.09% YoY to more than 9.67mn tonnes. In 1Q25, the firm's cement and clinker sales volume rose 6% YoY to 3.82mnt, prices rose Rmb7 YoY to Rmb220–230/t, and gross profit per tonne grew Rmb13 YoY to Rmb46/t thanks to recovering demand in eastern China.

Investment business has started to contribute profit; efforts to expand presence in hard-tech segments have paid off. Equity investment in new-economy sectors contributed net profit of Rmb125mn (20% of total) in 2024, and projects in semiconductor and alternative energy sectors started capitalization (link in Chinese).

1) Semiconductors: Investment in Nexchip Semiconductor Corporation generated income of Rmb166mn after the share sales. Onmicro (radio frequency chips), Shanghai Advanced Silicon Technology (large silicon wafers), and SJ Semiconductor Corporation (advanced packaging) entered the IPO process. Innotron Memory (memory chips) and CanSemi (power devices) completed the shareholding system reform. 2) Alternative energy: The Hong Kong IPO of Solar Space (a global top-2 cell manufacturer) was accepted.

A high dividend shows confidence; ample cash flow supports strategic transformation. The firm maintains a high-quality financial structure, with a net operating cash flow of Rmb1.04bn in 2024. Dividends increased significantly. The firm plans to pay a cash dividend of Rmb601mn (payout ratio at 96% and dividend yield at 7.4%), a significant increase from the previously promised bottom line of Rmb400mn, underscoring management's confidence in future growth.

Trends to watch

Sector recovery and investment income boost growth. We expect the cement sector's earnings to grow further thanks to accelerated construction of infrastructure projects, improving supply and demand conditions in eastern China, and falling coal prices. Strategically, the firm released a five-year plan to upgrade its "dual-driver" business model. The building materials business provides solid cash flow and dividend support, and the firm is strengthening its equity investment in technological innovation companies. We expect the firm to cultivate new growth drivers to support sustained growth in the new era.

Financials and valuation

As we raised our earnings per tonne assumption, we lift our 2025 net profit forecast 16% to Rmb771mn and introduce a 2026 net profit forecast of Rmb879mn. The stock is trading at 11x 2025e and 9x 2026e P/E. Maintain OUTPERFORM. We raise our target price 25% to Rmb10.5, implying 13x 2025e and 11.5x 2026e P/E and offering 24% upside, as sector prices are recovering from the bottom.

Risks

Disappointing demand recovery; disappointing price recovery in peak season.