3Q24 results in line with our expectationsThe firm announced its 1-3Q24 results: Revenue fell 13.1% YoY to Rmb15.77bn, and attributable net profit fell 51.6% YoY to Rmb309mn. In 3Q24, revenue dropped 11.5% YoY to Rmb5.46bn, and attributable net profit grew 74.5% YoY to Rmb143mn. The firm's 3Q24 results are in line with our expectations.
　　Cement and clinker: Decline in sales volume widened in 3Q24, reflecting increased production restrictions; prices are trending downward after previous price hikes; gross profit per tonnerecovered slightly QoQ. In 1-3Q24, sales volume fell 7.3% YoY to 43.88mnt, ASP fell Rmb51 YoY to Rmb237.5/t, and gross profit per tonne fell Rmb9/t YoY to Rmb30/t. In 3Q24, sales volume fell 16.2% YoY to 14.91mnt, ASP fell Rmb9/t YoY or rose Rmb4/t QoQ to Rmb236.6/t, and gross profit per tonne rose to Rmb32/t, up Rmb12/t YoY and Rmb2/t QoQ.
　　Aggregate: Production and sales volume growth and earnings per tonne disappointed due to slow construction of supporting facilities for large projects and unfavorable market conditions. In 1-3Q24,sales volume rose 70.7% YoY to 46.28mnt, ASP remained largely flat YoY at Rmb36.2/t, and gross profit per tonne rose Rmb5/t YoY to Rmb22/t. In 3Q24, sales volume rose 30.4% YoY to 16.79mnt, ASP fell Rmb2/t YoY or Rmb1/t QoQ to Rmb35.2/t, and gross profit per tonne fell Rmb6/t YoY or Rmb3/t QoQ to Rmb13/t.
　　Expense ratios rose YoY; losses from associates and joint venturesnarrowed. In 3Q24, the firm's operating expense ratio fell 0.1ppt YoY, and the G&A and financial expense ratios rose 2.2ppt and 0.4ppt YoY. Losses of associates and joint ventures narrowed by about Rmb35.5mn YoY.
　　Cash balance increased QoQ; borrowing ratio fell slightly. As of 3Q24,the firm's cash balance was about Rmb1.70bn, up Rmb583mn from end- 1H24. The firm's borrowing ratio was 38.6% at end-3Q24, 0.2ppt lower than at end-1H24. We think the firm may have accelerated payment collection in 3Q24, and its financial leverage remains solid.
　　Trends to watch
　　Price hikes may continue in southern China; we see a large upside inpotential earnings. As Xijiang River enters a dry season in 4Q24, we expect price hikes to continue in southern China. The firm has established　a strategy of prioritizing earnings, and we expect prices in core regions to recover marginally. We expect earnings to recover YoY and QoQ in 4Q24.
　　In 2025, we expect the firm's average profit per tonne to recover YoY with the recovery in the market. In addition, we expect output, sales, and earnings growth of the aggregate business to accelerate thanks to stable output and sales volume growth and the removal of bottlenecks in production and transportation.
　　Financials and valuation
　　As short-term price pressure remains high, we cut our 2024 and 2025 attributable net profit forecasts 34% and 10% to Rmb558mn and Rmb1.13bn. The stock is trading at 23x 2024e and 11x 2025e P/E. We maintain an OUTPERFORM rating. As market expectations have recovered amid industry-wide coordinated recovery, we maintain our target price at HK$2.5 (28x 2024e and 14x 2025e P/E), offering 25% upside.
　　Risks
　　Slow implementation of price hikes; sharper-than-expected decline in demand.