2023 results in line with market consensus
　　China Resources Building Materials Technology Holdings announced its 2023 results: Revenue fell 12.9% YoY to Rmb25.55bn, and attributable net profit dropped 60.1% YoY to Rmb644mn. The 2023 results are in line with market consensus.
　　The firm experienced a YoY decline in full-year sales volume, but the strategic adjustments made since 4Q23 have paid off. The company's cement and clinker sales volume fell 7.6% YoY to 69.3mnt in 2023, and the decline was sharper than the industry average. Sales volume for the Guangdong, Guangxi, and Fujian markets fell 1.5%, 16.0%, and 6.3% YoY, while that of Yunnan and Guizhou markets rose 1.3% and 2.1% YoY. However, the firm has adjusted its sales strategy since 4Q23. Per our estimates, its sales volume rose 11.6% YoY to about 21.96mnt in 4Q23, suggesting that its adjustment efforts have paid off.
　　Prices and gross profit per tonne are under pressure due to fierce price competition. In 2023, the ASP of the firm's cement and clinker was Rmb273/t (-Rmb35/t YoY). Its unit cost was Rmb239/t (-Rmb19/t YoY), and the gross profit per tonne was Rmb34/t (-Rmb16/t YoY). The falling costs failed to fully offset the impact of falling prices.
　　Expenses per tonne rose YoY. We estimate the firm's cement and clinker expenses per tonne at about Rmb49 in 2023, up Rmb6 YoY.
　　Production and sales volume of the aggregate business increased significantly, and its GM was stable. In 2023, the firm's aggregate sales volume rose 201.5% YoY to 45.58mnt, and its ASP dropped by Rmb2/t YoY to Rmb35/t. Its GM fell 1.1ppt YoY to 54.3%, largely stable.
　　Operating cash flow improved despite headwinds, and capex fell markedly. In 2023, the firm's net operating cash flow rose 46.9% YoY to Rmb3.92bn, and its capex fell 53% YoY to Rmb5.21bn.
　　Healthy balance sheet; maintaining a high dividend payout ratio. By the end of 2023, the firm's net borrowing ratio rose 2ppt YoY to 30%, and long-term loans accounted for 85% of the total, largely stable. The firm declared a dividend of about HK$0.047/sh, implying a payout ratio of about 46%, remaining high.
　　Trends to watch
　　Aggregate business to grow rapidly, with higher profit contribution. By the end of 2023, the firm's aggregate production capacity was around 92.50mnt with a potential production capacity of nearly 150mnt. We expect its aggregate business to enter a period of rapid growth with rising output, sales, and profit contribution. In 2024, we expect the ASP and gross profit per tonne of aggregates to rise steadily, with the production capacity ramp-up at its bases in Guangdong with higher ASP.
　　Focusing on gaining market share and cost reduction; we expect the firm to strengthen its regional leadership. The company has proposed a strategy of winning market share, avoiding breaking the bottom line, optimizing product structure, and improving market position. The focus is on cost reduction and core competitiveness improvement along the value chain. We expect the company to cement its leading position in southern China in 2024.
　　Financials and valuation
　　As cement prices in regional markets missed our expectations, we lower our 2024 attributable net profit forecast by 38% to Rmb676mn and introduce a 2025 attributable net profit forecast of Rmb804mn. The stock is trading at 12.0x 2024e and 9.7x 2025e P/E. We maintain an OUTPERFORM rating. Given the company's leading position in the region is expected to be consolidated and its competitiveness is expected to increase, we only cut our target price 28% to HK$1.93, implying 17.7x 2024e and 14.3x 2025e P/E, offering 47% upside.
　　Risks
　　Demand recovery disappoints; competition intensifies.