Huaxin Cement's 2Q26 results beat expectations, with overseas operations driving rare growth in the sector

Overview

This report is Morgan Stanley's response to Huaxin Cement's earnings preannouncement. The core view is that the company's 1H26 preliminary profit increased 50%-60% YoY, demonstrating rare rapid earnings growth within the building materials sector; implied 2Q26 profit was approximately Rmb1.0bn to Rmb1.1bn, above the firm's expectations. The report believes that steady overseas growth and stable operation of the domestic vertically integrated business together reinforce its investment thesis.

Core views

The core views include: first, 2Q26 earnings exceeded expectations, reinforcing the view of the company's earnings resilience and scarce growth profile; second, the overseas cement business may see strong growth in both sales volume and gross profit per tonne, with the consolidation of the Nigerian business being an important contribution; third, although domestic cement and aggregate operations face pricing pressure, proactive sales strategies and capacity expansion may drive volume growth; fourth, the positive rating is maintained, with the Rmb24.60 target price implying substantial upside.

Analysis framework

The report primarily uses earnings preannouncement decomposition, quarterly profit comparisons, analysis of business-segment drivers, and DCF valuation. The analysis focuses on 1H26 preliminary profit, implied 2Q26 profit, the contribution from consolidating overseas operations, domestic cement and aggregate volumes and pricing pressure, and expected relative returns over the next 12-18 months.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The target price represents the base case and is derived from a discounted cash flow model; the model discounts earnings forecasts through 2030e, with a cost of equity of 13.1%, a risk-free rate of 2.7%, a risk premium of 7.3%, a beta of 1.4, and a perpetual growth rate of 2%.

• RatingMorgan Stanley ModelWare

  Relative rating system

  Morgan Stanley uses relative ratings including Overweight, Equal-weight, Not-Rated, and Underweight, generally measuring risk-adjusted total returns relative to the industry coverage universe over the next 12 to 18 months.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Huaxin Building Materials (600801.SS)

  Core covered asset; an A-share cement and building materials company.

  Strengths

  Strong 1H26 profit growth, with 2Q26 profit above expectations; overseas cement sales volume and gross profit per tonne are expected to be strong; stable domestic vertically integrated operations; substantial implied upside to the target price.

  Weaknesses

  Domestic cement and aggregate operations continue to face pricing pressure, and supply-demand conditions may be weak in some regions.

  Comparison

  Compared with the building materials sector overall, the report emphasizes the company's rare rapid earnings growth.

  Risks

  Weak fundamentals in the Guizhou market could affect pricing conditions in Southwest and Central China; overseas growth could fall below expectations.

• Huaxin Building Materials (6655.HK)

  Related Hong Kong-listed security of the same company, appearing in the industry coverage list.

  Strengths

  Related to the improvement of the company's overall overseas and domestic operations.

  Weaknesses

  Similarly exposed to risks relating to cement prices, regional demand, and overseas execution.

  Comparison

  Together with 600801.SS, it reflects Huaxin Cement's equity assets, although the report primarily focuses on 600801.SS.

  Risks

  The rating and price may change with updated research.

Key data

• 1H26 preliminary profitRmb1.65-1.76bnUp 50%-60% YoY.
• Implied 2Q26 profitRmb1.0-1.1bnAbove Morgan Stanley's expectations; 1Q26 was Rmb630mn and 2Q25 was Rmb944mn.
• RatingOverweightThe industry view is In-Line.
• Target priceRmb24.60Based on the DCF base case.
• Current share priceRmb17.20Closing price as of 2026-07-10.
• Target price upside43%Relative to the current price of Rmb17.20.
• 2026e EPSRmb1.80Based on Morgan Stanley research estimates.
• 2026e revenueRmb40,981mnFiscal year ending 12/26e.
• 2026e EBITDARmb11,000mnFiscal year ending 12/26e.
• 2026e ModelWare net profitRmb3,385mnBased on Morgan Stanley ModelWare estimates.

Impact & implications

The earnings preannouncement shows that Huaxin Cement retains strong growth elasticity despite broad pressure across the building materials sector. If overseas operations continue to expand, the Nigerian consolidation contribution materializes, and the domestic vertically integrated business remains stable, the company may continue to achieve earnings advantages relative to the industry. From an investment perspective, the report positions it as a rare growth stock in the building materials sector, although regional demand, pricing pressure, and overseas growth will still require monitoring.

Risks

• Weak fundamentals in the Guizhou market could affect cement pricing conditions in Southwest and Central China.
• Overseas growth could be slower than expected.
• If demand in Hubei and Yunnan falls short of expectations, the impact of loose supply-demand conditions may be difficult to absorb.
• If production staggering and environmental production restrictions are weaker than expected, industry supply constraints may be insufficient.
• Domestic cement and aggregate operations face pricing pressure.

What to watch

• Whether 1H26 actual results fall within the preliminary profit range of Rmb1.65bn to Rmb1.76bn.
• Whether overseas cement sales volume and gross profit per tonne deliver strong growth in 2Q26.
• Revenue, profit, and gross profit contributions following consolidation of the Nigerian business.
• Whether volume growth in domestic cement and aggregate operations can offset pricing pressure.
• Supply-demand conditions and price trends in Hubei, Yunnan, Guizhou, Southwest China, and Central China.
• Whether Morgan Stanley further raises its EPS forecast over the next 12 months.