3Q25 results slightly beat our expectation

Shangfeng Cement announced its 1–3Q25 results: Revenue fell 5.7% YoY to Rmb3.6bn and net profit attributable to shareholders grew 30.6% YoY to Rmb0.53bn. In 3Q25, revenue fell 6.8% YoY to Rmb1.33bn, net profit attributable to shareholders grew 20.3% YoY to Rmb0.28bn, and recurring attributable net profit rose 38% YoY (Rmb68mn in non-recurring gains) to Rmb0.21bn. The firm’s 3Q25 results slightly beat our expectations, mainly due to better-than-expected control over per-tonne costs and investment income.

Cement sales volume and prices still under pressure; rising coal prices weaken earnings.

1) Sales volume and prices of cement and clinker are under pressure. In 1–3Q25, the firm's cement and clinker sales volume fell 6.21% YoY to 14.15mnt, with the decline slightly sharper than the industry average. Cement prices face downward pressure due to weak demand. We estimate that cement and clinker ASP at Rmb200/t in 3Q25 (down Rmb20 YoY or Rmb27 QoQ).

2) Rising coal prices weighted on gross profit per tonne; cost control effective. We estimate that the firm's gross profit per tonne of cement and clinker fell Rmb15 YoY and Rmb23 QoQ in 3Q25, mainly due to weak cement prices and recovering coal prices. However, its expenses per tonne fell Rmb4.3 YoY and Rmb3.7 QoQ thanks to its efforts to control costs.

3) Aggregate sales volume remained resilient. In 1–3Q25, the firm's sales volume of sand and gravel aggregates rose 41% YoY to 8.95mnt, mainly driven by demand in northwestern China.

Expense ratio declined; operating cash flow under pressure. In 3Q25, the firm's expense ratio fell 0.8ppt YoY to 14.5%. In 3Q25, net operating cash flow fell 21% YoY to Rmb0.28bn.

Rising income from equity investment business boosted investment income. In 3Q25, income from fair value changes rose 23% YoY to Rmb0.13bn, and investment income grew Rmb26mn YoY to Rmb0.03bn.

Trends to watch

In the near term, we suggest paying attention to the implementation of coordinated price hikes for the cement business, and the continued growth of the investment business. We expect earnings of the firm's cement business to improve QoQ in 4Q25, as local governments have started to halt production during peak seasons and coordinate price hikes. The firm continues to promote equity investment in semiconductor materials and other businesses (equity investment income contributed 31% of net profit in 1–3Q25). We are upbeat on steady growth in the profit contribution from the investment business amid pressured cement demand.

Financials and valuation

We maintain our 2025 net profit forecast at Rmb747mn, and raise our 2026 net profit forecast 9% to Rmb901mn, given the firm's strong ability to reduce costs and its investment income slightly beating our expectations. The stock is trading at 14x and 12x 2025e and 2026e P/E. We maintain an OUTPERFORM rating and raise our TP 33% to Rmb13.95, implying 18x and 15x 2025e and 2026e P/E, offering 26% upside, given the firm's improving earnings from investment and rising average valuation.

Risks

Disappointing recovery in demand; price recovery in peak season weaker than expected.