20170327-中国银河国际证券-China_Cement_Weekly_12页_924kb

China Cement Sector Summary

Core Content

The China cement sector experienced a slight increase in prices during the last week, with the nationwide average rising by 0.54% week-on-week (WoW) to RMB323.67/tonne. Regional variations were observed, with prices in Jiangsu, Zhejiang, Anhui, and Yunnan increasing by RMB10–30/tonne, while prices in Guangxi and Hunan declined by RMB10–20/tonne. The daily shipment volume also dropped by 10–30% WoW, attributed to the impact of rainfall in late March. However, the overall inventory level remained low at 60.25%, suggesting that the price impact is manageable in the short term, though prolonged rainy weather could lead to price cuts.

Main Points

• Price Trends:

  • Cement prices increased slightly on a national level.
  • Regional price fluctuations were noted, with some areas experiencing price hikes and others declines.
  • Shipment volumes dropped due to weather-related demand suppression.

• Coal Prices:

  • Coal prices continued to rise, with the Bohai-Rim Steam Coal (Q5500K) index increasing by RMB7/tonne to RMB606/tonne.
  • The index rose by 55.8% year-on-year (YoY), indicating a significant upward trend.

• Profit Targets:

  • The cement industry aims for total profit of RMB80bn in 2017, a 54% YoY increase.
  • Companies like CNBM and CR Cement are expected to see substantial profit growth: 200% YoY and 144% YoY, respectively.
  • Anhui Conch is projected for 42% growth in reported net profit, as its 2016 performance was relatively strong.

• Stock Performance:

  • Cement stocks under coverage declined on average by 2.3%.
  • CR Cement was the best performer, rising 2.3%.
  • BBMG was the weakest, falling 6.6%, likely due to news on tighter property purchase restrictions in some cities.

Key Information

• Valuation Metrics:

  • PER (x): The simple average was 21.3 in 2015, decreasing to 9.0 in 2017.
  • PBR (x): The simple average was 10.0 in 2015, decreasing to 7.2 in 2017.
  • EV/EBITDA (x): The simple average was 10.0 in 2015, decreasing to 6.9 in 2017.
  • Net Debt/Equity (%): The simple average was 77%, with BBMG at 54% and Anhui Conch at 2.0%.

• Market Share by Region (2016):

  • East China: Anhui Conch (17.6%), CNBM (23.8%), CR Cement (1.4%).
  • South Central China: Guangdong (11.8%), Guangxi (10.3%), Hunan (10.7%).
  • North China: Hebei (6.3%), Shanxi (16.2%), Inner Mongolia (7.5%).
  • Northeast China: Heilongjiang (20.7%), Jilin (11.5%), Liaoning (6.5%).
  • Southwest China: Sichuan (26.7%), Guizhou (21.4%), Yunnan (11.2%).
  • Northwest China: Gansu (7.5%), Shaanxi (0.0%), Qinghai (0.0%).

• Clinker Capacity Breakdown by Region (2016):

  • East China: Anhui Conch (44.9%), CNBM (40.2%), CR Cement (8.5%).
  • South Central China: Guangxi (26.5%), Hunan (39.1%), Sichuan (10.2%).
  • North China: Hebei (5.2%), Shanxi (3.4%), Inner Mongolia (25.7%).
  • Northeast China: Heilongjiang (100.0%), Jilin (23.5%), Liaoning (4.5%).
  • Southwest China: Yunnan (32.0%), Guizhou (30.7%), Sichuan (13.1%).
  • Northwest China: Gansu (2.9%), Shaanxi (5.2%), Qinghai (0.0%).

Conclusion

The cement sector in China showed mixed performance with slight price increases and reduced shipment volumes due to weather conditions. Despite the challenges, the low inventory levels suggest that the market remains relatively stable. Profit growth is expected across the industry, with some leading companies projected for significant increases. The valuation metrics indicate a downward trend in price-to-earnings and enterprise value-to-EBITDA ratios, suggesting potential undervaluation. Regional market share and capacity data highlight the dominance of certain companies in specific regions, with Anhui Conch and CNBM leading in East China, and BBMG and CR Cement showing varied performance in different areas.