CICC: Cuts CR BLDG MAT TEC (01313) target price by 40% to HK$1.33, maintains "Outperform" rating, optimistic about gradual earnings recovery

CICC issued a research report stating that CR BLDG MAT TEC's (01313) Q3 2026 results fell short of the firm's expectations. Considering the higher-than-expected rise in coal costs, combined with continued pressure on cement and aggregate prices, the firm lowered its net profit attributable to shareholders forecasts for 2026 and 2027 from RMB803 million and RMB823 million to RMB-794 million and RMB115 million, respectively. The firm maintains its "Outperform" rating and cut its target price by 40% to HK$1.33. Given that the company is currently at the bottom of a historical cycle and product prices have begun to recover, the firm believes that supply constraints in South China are strengthening, and as coal price pressure eases and supply governance continues, the company's earnings are expected to gradually recover. CICC's key views are as follows: Q3 2026 results fell short of expectations The company announced its Q3 2026 results, with single-quarter revenue down 13.9% year-on-year to RMB4.189 billion; net profit attributable to shareholders was RMB-355 million, compared with RMB24 million in the same period last year, turning from profit to loss. Rising coal prices and weak demand pressure cement clinker profitability Year-to-date, the average price of Q5500 thermal coal at Qinhuangdao Port has risen 29.3% cumulatively, while the national average cement price fell 10.4% over the same period, significantly narrowing the purchase-sale price spread. The company's cement clinker sales volume fell 16% year-on-year to 11.86 million tonnes; average price per tonne fell RMB1 year-on-year to RMB204, cost per tonne rose RMB27 year-on-year to approximately RMB200, and gross profit per tonne fell RMB28 year-on-year to approximately RMB4. Concrete and aggregate profitability under pressure, period expenses rising In Q3 2026, the company's concrete sales volume rose 40% year-on-year, but gross profit per cubic meter fell RMB21 year-on-year to RMB25; aggregate sales volume fell 21% year-on-year, and gross profit per tonne fell RMB4.7 year-on-year to approximately RMB3.6. All-in cement clinker cost per tonne increased RMB13 year-on-year to approximately RMB63, with selling, administrative and financial expense ratios combined up 3.2 percentage points year-on-year. Supply constraints in South China strengthening, optimistic about gradual earnings recovery The firm observed that since late September, cement prices in South China have continued to rise by approximately 15%. This round of price increases in South China differs from previous years: overproduction governance has been upgraded from industry self-disciplined staggered production to daily output verification, combined with transport restrictions during the dry season on the Xijiang River, the inventory ratio has fallen by approximately 5 percentage points to 63%, making the supply side a "hard constraint" rather than "soft staggered production." The firm believes that the company is expected to turn profitable in Q4 2026; in 2027, with coal price pressure easing and supply governance continuing, cement clinker gross profit per tonne is expected to gradually recover from the current approximately RMB4 to a level of RMB15 to RMB20. High-elasticity South China regional leader, valuation recovery expected The company accounts for approximately 70% of capacity in South China and over 30% in Guangdong, making it a direct beneficiary of this round of regional price recovery; meanwhile, the company has an integrated layout of cement, commercial concrete and aggregates, giving it strong earnings elasticity during price upcycles. With price improvement and easing coal cost pressure, the firm is optimistic that the company's valuation will gradually recover as the earnings cycle bottoms out. Earnings forecasts and valuation Considering the higher-than-expected rise in coal costs, combined with continued pressure on cement and aggregate prices, CICC lowered CR BLDG MAT TEC's net profit attributable to shareholders forecasts for 2026 and 2027 from RMB803 million and RMB823 million to RMB-794 million and RMB115 million, respectively. The current share price corresponds to a forecast price-to-book (P/B) ratio of 0.15x for both 2026 and 2027. Risk warnings Overproduction governance and price increase implementation fall short of expectations; coal prices remain elevated.