Core Viewpoint - The cement industry is experiencing a significant decline in prices, with a need for "anti-involution" measures to address overcapacity and improve profitability [1][2]. Group 1: Industry Overview - In 2024, the capacity share of central state-owned enterprises in the cement industry is expected to be around 45%, with the top four companies being state-owned, indicating a favorable competitive structure for anti-involution efforts [1]. - The industry's concentration ratios (CR10, CR5, CR2) are projected to reach 57%, 44%, and 31% respectively in 2024, highlighting a high level of market concentration [1]. Group 2: Financial Performance - The cement industry faced a challenging period, with over 55% of companies reporting losses in the worst quarter, but a recovery is expected in Q4 2024, with total profits projected to be between 150-160 billion yuan, reversing a loss of 11 billion yuan in the same period last year [2]. - The average national cement price has decreased by 43.7 yuan/ton year-on-year as of early August, indicating a return to the industry's lowest profitability levels seen in the previous year [2]. Group 3: Supply-Side Reform - Previous supply-side reforms successfully reduced new capacity and improved industry profitability, with profits rising from 518 billion yuan in 2016 to a historical high of 1867 billion yuan in 2019 [3]. - The industry has reached a peak supply level of around 1.8 billion tons, but demand continues to decline, leading to a projected capacity utilization rate of only 53% in 2024 [4]. Group 4: Future Outlook - The anti-involution strategy will involve a combination of market, administrative, and legal measures, with short-term reliance on staggered production to stabilize the market [5]. - In the medium term, administrative measures will likely force companies to reduce capacity, potentially leading to a 19.5% decrease in actual capacity to 1.77 billion tons [5]. - Long-term expectations include stricter carbon emission policies by 2027, which may increase production costs and accelerate the exit of high-emission capacities from the market [5].

Investment Rating - The report assigns a "Buy" rating to the company, Tianshan Co., Ltd. (000877.SZ), with a target price of 8.22 CNY per share based on a 0.7x PB for 2025 [1][6][21]. Core Insights - Tianshan Co., Ltd. is the largest cement producer in China with a complete industrial chain and national layout. The company is expected to benefit from cost control improvements, seasonal price increases, and policy-driven supply-side adjustments. The company is also expanding its "Cement+" business and overseas markets to create new growth avenues [1][2][3][21]. Summary by Sections Company Overview - Tianshan Co., Ltd. is a core enterprise under China National Building Material Group, with the largest cement clinker capacity in the country. The company has undergone significant growth and restructuring, becoming a national leader in the cement industry [25][31][26]. Industry Demand and Supply - Demand for cement is projected to decline by 5-6% in 2025, but the rate of decline is expected to narrow. The company is well-positioned to benefit from infrastructure projects in Xinjiang, where it holds a leading market share [2][54]. - The supply side is seeing a trend towards "anti-involution," with policies aimed at reducing overproduction. The industry is expected to improve its competitive landscape as excess capacity is gradually eliminated [2][57]. Performance and Cost Management - The company has faced pressure on revenue and profits in recent years, but the rate of decline is improving. Cost management is expected to enhance profitability, with a projected decrease in unit costs by 23 CNY in 2024 [3][4]. - The company is focusing on integrated operations and overseas expansion, with expectations of revenue growth from international projects [3][4]. Financial Projections - The company is forecasted to achieve revenues of 83.3 billion CNY in 2025, with a net profit of 1.72 billion CNY. The projections for 2026 and 2027 are 82.6 billion CNY and 82.1 billion CNY in revenue, respectively [4][21]. - The report highlights that the company's current valuation is at a historical low, providing significant upside potential [21]. Key Assumptions - The report assumes a 10% decline in cement and clinker sales in 2025, with a gradual recovery in subsequent years. It also anticipates price stability and cost reductions due to improved management practices [15][16][17].

Core Viewpoint - The launch of the Yarlung Tsangpo River hydropower project is expected to significantly boost investment opportunities in related sectors, particularly in construction materials and infrastructure [1][2]. Group 1: Project Overview - The Yarlung Tsangpo River hydropower project will involve the construction of five cascade power stations with a total investment of approximately 1.2 trillion yuan (about 1.2 trillion) [1]. - This project is projected to account for 88.7% of China's total water conservancy investment in 2024, highlighting its scale and importance [1]. Group 2: Industry Impact - The project is anticipated to create substantial demand for construction materials, steel, and other related industries, benefiting companies involved in water conservancy, tunneling, and power equipment [1][2]. - The construction of large-scale hydropower stations is expected to enhance the demand for raw materials, leading to a dual benefit of supply and demand for steel and construction materials [2]. Group 3: Cement Industry Insights - The Yarlung Tsangpo project will directly stimulate cement demand in Tibet and surrounding areas, with expectations of price increases due to supply optimization and reduced competition within the cement industry [3]. - The cement industry is undergoing a "reverse involution" process, which is expected to improve the supply-demand balance and enhance profit margins for leading regional cement companies [3]. - New regulations aimed at controlling cement production capacity are expected to further stabilize the industry, promoting high-quality development [3].

Summary of Conference Call Records Industry Overview: Cement Industry Key Points on Industry Dynamics - The cement industry is experiencing a phase of "anti-involution," where leading companies have a competitive advantage. Despite a profit bottoming out in Q1 2024, the industry did not face overall losses, indicating strong risk resilience among leading firms like Conch Cement, whose gross profit per ton is comparable to that of Q3 2015 [1][3]. - Since Q3 2024, cement prices have increased due to enhanced staggered production and stricter capacity reduction policies, leading to multiple price hikes. The performance in H1 2025 is expected to be positive, with mid-year reports indicating an overall improvement in the sector [1][3]. - Market expectations for cement demand remain optimistic, driven by anticipated policy announcements in July and infrastructure investments. However, demand is expected to remain under pressure in the coming years, necessitating a collaborative supply-side approach to manage demand fluctuations [1][4][5]. Financial Projections and Market Valuation - Conch Cement's future balanced profit is projected to be between 10 billion to 15 billion CNY, with an estimated performance range for this year between 9 billion to 10 billion CNY, corresponding to a market capitalization range of 110 billion to 140 billion CNY, indicating that the current market valuation is relatively low [1][7]. - The Hong Kong stock market has reacted more positively to the anti-involution measures and interim performance compared to the A-share market, suggesting that investors in Hong Kong place greater emphasis on supply-side logic [1][8]. Production and Pricing Trends - Domestic cement production is expected to decline by approximately 4% year-on-year in H1 2025, with operating rates dropping to the lowest levels since 2020. Cement prices have fallen below last year's lows, indicating significant price pressure [1][19]. - The industry’s operating rate has fallen below 40%, marking the lowest level since 2020, with prices dropping from 400 CNY per ton to around 350 CNY since April 2025, indicating ongoing price pressures [1][19]. Company-Specific Insights: Huaxin Cement Growth and Market Position - Huaxin Cement has rapidly expanded its overseas business, with profits from international operations exceeding 40%. The company has significantly increased its production capacity in Africa through acquisitions, enhancing its pricing and gross profit per ton [2][22]. - The company has established a strong market presence in 13 countries, primarily in Africa, which helps mitigate risks associated with regional competition and currency fluctuations [23]. Competitive Advantages - Huaxin Cement benefits from a mixed ownership structure, allowing it to leverage both foreign and state-owned resources, particularly in overseas markets [23]. - The company has adopted a strategy of acquiring existing production capacities rather than building new ones, which accelerates market entry and enhances profitability through technological upgrades [23]. Future Outlook - The company is expected to continue its growth trajectory, with profits projected to increase by approximately 20% in 2026, driven by ongoing expansion in Nigeria and other markets [27][28]. - Huaxin Cement's focus on integrating its supply chain and enhancing operational efficiency positions it favorably in the current market environment, making it a recommended investment opportunity [28]. Conclusion - The cement industry is navigating a complex landscape characterized by price pressures and fluctuating demand, with leading companies like Conch Cement and Huaxin Cement demonstrating resilience and growth potential. The focus on supply-side reforms and strategic expansions, particularly in overseas markets, will be critical for sustaining profitability and market position in the coming years [1][28].

Investment Rating - The report maintains an "Overweight" rating for the cement industry [6][27]. Core Insights - The cement industry is expected to see significant improvement in performance forecasts for the first half of 2025, driven by anti-involution measures and a focus on high-quality development [1][4]. - The historical success of supply-side reforms has led to a reduction in new cement production lines, alleviating supply-demand imbalances, but recent market demand declines have intensified competition [2][3]. - The regulatory framework for anti-involution policies is being strengthened, with measures to address overproduction expected to be a key focus in the second half of 2025 [3][4]. - Companies with integrated operations and global expansion strategies are positioned for long-term growth, with specific recommendations for Huaxin Cement, Conch Cement, and China National Building Material [1][4][8]. Summary by Sections Industry Overview - The cement industry has experienced a significant drop in average prices, with a year-on-year decrease of 11.5% as of July 11, 2025, leading to a renewed call for anti-involution measures [2][3]. Performance Forecasts - Five cement companies have reported impressive performance forecasts for the first half of 2025, with some expecting net profit increases of over 100% year-on-year [4][8]. Policy Developments - Recent policies from the Ministry of Industry and Information Technology and the inclusion of the cement industry in carbon emissions trading are expected to enhance the regulatory framework for managing overproduction [3][4]. Company Recommendations - The report highlights Huaxin Cement, Conch Cement, and China National Building Material as key investment opportunities due to their competitive advantages in scale, cost, and energy efficiency [1][4][8].