GF SECURITIES·2024-06-07 07:01Investment Rating - The report maintains a "Buy" rating for both A and H shares of Conch Cement [4]. Core Views - Conch Cement continues to lead the domestic cement industry with significant profit advantages, even at the bottom of the market cycle, demonstrating resilience [2]. - The company has expanded its business into aggregates and overseas cement markets to mitigate pressures from its core domestic cement operations [2]. - Profit forecasts indicate a gradual recovery, with expected net profits of 9.517 billion, 10.424 billion, and 11.269 billion yuan for 2024, 2025, and 2026 respectively, suggesting a favorable valuation outlook [2]. Summary by Sections 1. Industry Leadership and Profitability - Conch Cement is recognized as a leader in the cement industry, with a consistent profit scale that ranks first in the sector, achieving revenues of 141 billion yuan and net profits of 10.4 billion yuan in 2023 [13][16]. - The company has significantly increased its production capacity over the years, with clinker capacity rising from 23 million tons in 2003 to 272 million tons in 2023, and cement capacity from 30 million tons to 395 million tons [20]. 2. Profitability Advantages and Cost Management - The report highlights that Conch Cement's profitability per ton remains superior, with estimates of approximately 27 yuan per ton in Q1 2024, while most competitors are expected to incur losses [2]. - The company maintains a cost advantage of 25-35 yuan per ton compared to the industry average, attributed to its T-shaped strategy, technological advancements, and efficient management practices [2]. 3. Business Expansion into Aggregates and Overseas Markets - To counterbalance domestic market pressures, Conch Cement has diversified into aggregates and concrete businesses, with aggregate capacity reaching 150 million tons per year by the end of 2023, contributing 8% to gross profit [2][16]. - The overseas cement market has also been a focus, with revenues from international operations amounting to 5.1 billion yuan in 2023, representing 3.6% of total revenue [2]. 4. Profit Forecasts and Investment Recommendations - The report projects net profits for Conch Cement to be 9.517 billion yuan in 2024, 10.424 billion yuan in 2025, and 11.269 billion yuan in 2026, with corresponding P/E ratios of 13.4, 12.2, and 11.3 [2]. - The report suggests a reasonable PB valuation of 0.85 for 2024, leading to a target price of 30.39 yuan per share for A shares and 24.48 HKD for H shares [2].