1H24 results in line with our expectations
　　China Resources Building Materials Technology Holdings announced its 1H24 results: Revenue fell 13.9% YoY to Rmb10.31bn and net profit attributable to shareholders fell 70.2% YoY to Rmb166mn. In 2Q24, revenue fell 20.0% YoY to Rmb5.52bn and net profit attributable to shareholders fell 66.8% YoY to Rmb195mn. The firm’s 1H24 results were in line with our expectations.
　　1H24: Cement and clinker sales volume fell YoY due to pressure on demand; prices and gross profit per tonne plunged. According to the National Bureau of Statistics, cement output in China and central and southern China fell 10.7% and 12.7% in 1H24, indicating large downward pressure on demand. The firm’s cement and clinker sales volume fell 2% YoY to about 2.90mnt, much narrower than the industry average.
　　However, the ASP of cement and clinker fell Rmb76/t YoY to Rmb238/t due to strong price competition. Gross profit fell Rmb21/t YoY to Rmb29/t despite cost cuts. In 1H24, sales volume of the firm’s aggregates rose 107.3% YoY to about 29.5mnt, and gross profit of this product fell Rmb5/t YoY to Rmb14.5. The firm’s aggregate sales volume is expanding rapidly, and its revenue and profit contribution has increased notably.
　　2Q24: Sales volume under increased pressure; gross profit per tonne recovered. The firm’s cement and clinker sales volume fell 7.1% YoY to about 15.93mnt, with the YoY decline widening amid weakening market demand. The firm’s cement and clinker ASP was about Rmb233/t (- Rmb75/t YoY and -Rmb12/t QoQ), still in a downward trend. The firm’s gross profit per tonne of cement and clinker stood at Rmb30 (-Rmb30/t YoY and +3/t QoQ).
　　Expense ratio rose; borrowing ratio edged down. In 1H24, the firm’s selling, G&A, and financial expense ratios rose 0.2ppt, 1ppt, and 0.3ppt YoY despite falling revenue. At end-1H24, the ratio of the total amount of bank borrowings, loans from related parties, and medium-term notes to equity attributable to shareholders was 38.8%, down 0.5ppt from end- 1Q24.
　　In 1H24, the firm’s underlying profit per share were Rmb0.024, and it declared an interim dividend of HK$0.02 per share.
　　Trends to watch
　　Steady price hikes in core markets; earnings to improve notably in 2H24. Cement prices in southern China, the firm’s core market, began to recover in mid-to-late June, with cumulative price hikes reaching Rmb50- 60/t. According to Digital Cement, mainstream cement prices in Guangdong and Guangxi have remained stable recently.
　　We attribute the downward pressure on the firm’s earnings in 1H24 to low unit selling prices and per-tonne earnings. However, the recent successful price hikes may indicate that the firm’s earnings have bottomed out. If infrastructure construction projects receive more funds in 2H24, demand in the peak season may improve marginally, and there is still room for further price hikes. We expect rising sales volume and prices to boost earnings in 2H24. In addition, production and sales volume of the firm’s aggregate business are growing rapidly, and we expect its revenue and profit contribution to continue to increase, further supporting its earnings recovery.
　　Financials and valuation
　　We keep our 2024 and 2025 attributable net profit unchanged at Rmb851mn and Rmb1.27bn. The stock is trading at 12.2x 2024e and 8.2x 2025e P/E. We maintain an OUTPERFORM rating and TP of HK$2.5, implying 18.5x and 12.5x 2024e and 2025e P/E, offering 52% upside.
　　Risks
　　Demand recovery disappoints; price competition intensifies.