China International Capital Corporation (CICC) has released a research report stating that due to over HKD 100 million in fixed asset impairments recorded as management expenses for the first half of the year at CR BLDG MAT TEC (01313), which did not incur similar charges in the prior year, and with cement volume and price performance potentially falling short of previous expectations, the firm has revised its earnings per share (EPS) estimates for 2025 and 2026 downward by 66% and 48%, respectively, to HKD 0.06 and HKD 0.11. The current share price corresponds to 28x/14x price-to-earnings (P/E) ratios for 2025/26. Despite this, CICC maintains an outperform industry rating, suggesting that "anti-involution" trends may drive sector valuation up. Consequently, the target price has been adjusted downwards by 12% to HKD 2.2, which implies a 34x/17x P/E for 2025/26 and a potential upside of 24%.
Key viewpoints from CICC are as follows:
1. **3Q25 Performance Meets Expectations**: The company released its 3Q25 results, showing a year-on-year revenue decrease of 11% to HKD 4.86 billion and a net profit attributable to shareholders dropping 83% to HKD 24.32 million, largely in line with CICC’s expectations. 2. **Cement Demand Softens in Low Season**: In the low season, cement demand remained weak, with the company's cement sales decline slightly below the industry average. The total cement clinker sales volume in 3Q25 dropped by 5.3% year-on-year to 14.12 million tons, while the industry’s overall cement production fell by 6.6%. The average price per ton of clinker was HKD 205, down HKD 32 from the previous year, while costs per ton also dropped by HKD 32 to HKD 173; gross margin per ton remained flat at HKD 32. The cement sector continues to face pressure from weak season demand coupled with increased marginal supply-demand discord.
3. **Rapid Growth in Aggregates and Concrete Sales**: Aggregate and concrete sales showed rapid growth, with concrete and aggregate volumes rising 11% and 32% year-on-year, respectively. The gross margin for concrete grew by HKD 7 to HKD 46, while the margin for aggregates decreased year-on-year by HKD 5 and quarter-on-quarter by HKD 1 to HKD 8.3. CICC predicts that industry aggregate capacity releases over 2025-2026 may lead to temporary profit pressures.
4. **Slight Increase in Expense Ratio**: The company reported a year-on-year increase of HKD 3 in total expenses per ton of cement clinker to HKD 50, with sales, management, and financial expenses rising by 0.2ppt, 1.9ppt, and decreasing by 0.5ppt, respectively.
5. **Potential Price Increases in Late 2025**: CICC anticipates that the industry may still be preparing for price increases in November and December, supported by proactive measures to stagger kiln shutdowns. Looking ahead to the next year, if the industry strictly implements measures to limit overproduction, clinker utilization rates could improve to approximately 60%. Coupled with the company's management focus on profit and pricing, there is significant potential for improved per-ton profitability in the South China market.
The company has adequately accounted for fixed asset impairments this year and intends to focus on its core operations, maintaining a lean approach. Given a low baseline in 2025, performance volatility may be expected.
**Risk Warning:** Potential recovery in demand could fall short of expectations, inter-industry pricing collaboration may be insufficient, and competition within the industry could intensify.
Comments