August 10, 2026/InvestmentOne Report
HBMNG s revenue increased to NGN678.41bn in H1:2026 from NGN516.98bn in H1:2025 (+31.23% YoY), supported by stronger volumes, pricing and product mix. Cost of sales rose more moderately to NGN256.60bn from NGN221.21bn (+16.00% YoY), as improved plant stability allowed the company to produce more cement without a corresponding increase in production costs.
Consequently, gross margin expanded to 62.18% from 57.21%, signalling that HBMNG s growth was not merely price-led; higher plant utilization and cost discipline improved the profitability of each tonne sold. Administrative expenses increased by 47.91% YoY to NGN45.45bn, with technical-service fees rising by 49.22% to NGN16.45bn and accounting for 36% of the expense line. As the fee is linked to net sales and EBITDA, it represents a recurring cost that will absorb part of the company’s incremental earnings as revenue grows. Nevertheless, operating margin expanded to 42.89% from 37.19%, indicating that operational efficiency gains remained strong enough to outweigh the higher overhead.
Operating profit increased to NGN290.94bn from NGN192.27bn (+51.32% YoY), confirming that earnings growth was driven primarily by stronger cement operations. Finance income also rose to NGN27.95bn from NGN10.25bn (+172.71% YoY) but remained secondary as operating profit accounted for approximately 92% of Profit Before Tax (PBT). Cash conversion was less impressive. After NGN131.51bn in tax payments, operating cash flow stood at NGN149.05bn, of which NGN141.47bn was, capex advances under construction work in progress, leaving only NGN7.58bn after capital expenditure.
Against FY:2025, Construction Work in Progress increased to NGN165.68bn from NGN66.00bn, while cash fell to NGN330.64bn from NGN388.07bn, showing that HBMNG is funding a major capacity build from its existing liquidity. The next phase of earnings growth will depend on converting this spending into productive capacity. Beyond the targeted January 2027 commissioning, the key test will be how quickly the Sagamu and Ashaka lines achieve stable utilization and produce at competitive energy and distribution costs. A slow ramp-up would introduce depreciation and fixed operating costs before the additional volumes generate adequate returns.
Q2 Cost Acceleration Tests the Sustainability of H1 Margins: Q2:2026 revenue increased to NGN343.53bn from NGN268.63bn in Q2:2025 (+27.88% YoY) and from NGN334.88bn in Q1:2026 (+2.58% QoQ), but production costs rose faster to NGN127.20bn from NGN95.83bn (+32.73% YoY), increasing the production-cost ratio to 37.03% from 35.67% and narrowing gross margin to 62.97% from 64.32%. Variable production costs, covering kiln fuel, electricity, additives, packaging and consumables, rose to NGN81.83bn from NGN60.35bn (+35.59% YoY), represented 64.33% of production costs and accounted for 68.5% of the NGN31.37bn increase.
This suggests pressure from energy, packaging and consumables, alongside possible output growth. NBS reported that diesel prices rose to NGN3,277.47 per litre in May 2026 from NGN1,758.26 in May 2025 (+86.40% YoY), this was due to the Q2 disruption, to crude and refined-product flows through the Strait of Hormuz. This would have raised quarry equipment, generator, internal haulage and outbound logistics costs.
Fixed production costs rose to NGN21.47bn from NGN15.12bn (+42.00% YoY), contributing 20.20% of the total increase. This may reflect wage and power inflation, lower kiln utilization or early Sagamu and Ashaka readiness costs. Nigerian Meteorological Agency (NiMet) had forecast early rainfall in Cross River and a longer rainy season in Ogun; wetter quarry conditions could have reduced throughput and raised fixed cost per tonne. Gross profit rose 25.2% to NGN216.33bn, while operating profit increased 24.10% to NGN149.68bn. However, gross-to-operating-profit conversion eased to 69.20% from 69.80%. Although H1’s distribution-cost ratio improved to 12.61% from 14.97%, Q2 better reflects current cost direction and weakens the case for annualizing H1’s 62.18% gross margin. Q2 showed production costs rising faster than revenue, so the key test is whether pricing and plant efficiency can keep fuel, power and raw-material cost per tonne under control. Any sustained margin decline would indicate that the new capacity could add volume without delivering proportionate earnings.
Capital Allocation Under Scrutiny: NGN16 Dividend During Peak Expansion: HBMNG’s NGN16.00 interim dividend is 60% above the NGN10.00 per share paid for FY:2025 and represents 78.0% of June cash. Its scale shortly after Huaxin’s takeover signals an aggressive payout policy and may partly accelerate the controlling investor’s cash recovery. Holcim valued 100% of the business at USD1.00bn before dividend adjustments, implying a pre-adjustment value of approximately USD838.10mn attributable to Huaxin’s 83.81% stake. Huaxin would receive NGN216.00bn, versus NGN41.72bn for minorities. HBMNG can fund the payout from cash, but not from NGN7.58bn post-capex free cash flow. On a static basis, payment would reduce the 30 June 2026 cash balance to approximately NGN72.92bn before H2 operating inflows. Shareholders must be on the register by 12 August; payment is scheduled for 17 August 2026.
OUTLOOK: HBMNG remains positioned for strong FY:2026E earnings, with revenue, PAT and EPS projected at NGN1.36tn, NGN392.80bn and NGN24.39, respectively, supported by resilient pricing, strong legacy-plant efficiency and operating leverage. However, Q2 cost acceleration, lower treasury income and the NGN257.72bn interim dividend increase the importance of completing the Sagamu and Ashaka expansions on schedule and converting the additional 5.5 MTPA capacity into profitable volumes and stronger cash generation. Our valuation yields a target price of NGN423.22 per share. Key catalysts are January 2027 commissioning, improved clinker factor, alternative-fuel adoption and logistics efficiencies. Principal risks are project delays, persistent energy inflation, maintenance underinvestment, elevated related-party costs and tighter liquidity. We maintain an OVERWEIGHT rating.
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