20160114-美银美林-金隅股份-02009.HK-Preliminary_FY15_results_beat,_likely_due_to_better_property_segment__Maintain_Buy_14页_975kb

Summary of BBMG Preliminary FY15 Results and Investment Outlook

Core Content

BBMG (Beijing Modern Green City) reported preliminary FY15 results, which beat expectations due to improved performance in the property segment. The company is expected to maintain a "Buy" rating based on positive outlooks for its cement and property businesses.

Key Financial Performance

• Preliminary FY15 NPAT: Expected to drop by $10-22%$ YoY, implying Rmb 1.9-2.2bn, beating estimates by $0-12%$ and above consensus by $0-16%$.
• 4Q15 NPAT: Expected to range from Rmb 828mn to Rmb 1.1bn, representing a $+22-64%$ YoY increase compared to Rmb 14mn in 3Q15.
• Property GFA Booked: 1.3mn sqm in FY15, with 726k sqm booked in 4Q15, up $25%$ YoY.
• Cement Sales: Largely in line with guidance for FY15, with expected GP/t of Rmb 11/t in 4Q15E and Rmb 18/t for FY15E.

Investment Rationale

• Cement Business Recovery: Positive outlook for 2016E, driven by strong demand growth from BTH integration projects.
• Property Segment Improvement: Expected to benefit from better project launches and a recovery in the property market.
• SOE Reform and BTH Integration: Expected to accelerate the conversion of industrial land to commercial use, enhancing value.
• Cement Price Outlook: Positive due to nearly no capacity addition, more closures, and demand recovery from 2016.

Valuation and Price Objective

• Price Objective (H Share): HK$7.00, based on sum-of-the-parts analysis using 6x 2016E EV/EBITDA for cement and 50% discount to NPV for property.
• Price Objective (A Share): RMB 11.50, based on 10x 2016E EV/EBITDA for cement and 25% discount to NPV for property.
• Current Trading Prices:
  • H Share: HK$4.33
  • A Share: RMB 8.25
• Discounts:
  • H Share is trading at a $56%$ discount to A Share.
  • H Share has a 7x 16E P/E and 0.5x 16E PB, which are undemanding compared to historical averages of 9.8x/1x.

Upside Risk from Land Conversion

• Industrial Land Conversion: BBMG holds 6.9mn sqm of industrial land, with 1.7mn sqm likely to convert to commercial use.
• Valuation Impact: If all land is converted, the NPV could reach RMB24bn, or HK$5.6/share.
• Upside Range: Potential upside risk to valuation could range from HK$1.4 to HK$4.2, depending on the discount applied to NPV.

Financial Projections (Dec)

Metric	2013A	2014A	2015E	2016E	2017E
Net Income (Adjusted - mn)	2,670	1,975	1,710	2,535	3,299
EPS	0.751	0.506	0.386	0.504	0.646
EPS Change (YoY)	8.4%	-32.5%	-23.8%	30.7%	28.3%
Dividend / Share	0.087	0.050	0.073	0.101	0.129
Free Cash Flow / Share	(0.761)	(1.75)	0.741	2.04	1.16

Valuation Metrics (Dec)

Metric	2013A	2014A	2015E	2016E	2017E
P/E	4.50x	6.84x	9.41x	7.28x	5.68x
Dividend Yield	2.58%	1.44%	2.02%	2.75%	3.52%
EV / EBITDA*	7.26x	7.17x	8.14x	6.83x	5.58x
Free Cash Flow Yield*	-18.56%	-47.76%	21.37%	62.09%	35.15%

• For full definitions of iQmethod measures, see page 11.

Key Income Statement and Cash Flow Data

Metric	2013A	2014A	2015E	2016E	2017E
Sales (CNY Millions)	43,204	39,452	40,653	44,574	48,231
Gross Profit	8,404	8,179	8,067	9,433	11,180
Operating Profit	5,046	5,041	4,295	5,266	6,610
Net Income (Adjusted)	2,670	1,975	1,710	2,535	3,299
Cash Flow from Operations	(560)	(6,156)	4,658	11,806	7,079
Free Cash Flow	(3,259)	(8,383)	3,750	10,898	6,171

Key Balance Sheet Data

Metric	2013A	2014A	2015E	2016E	2017E
Total Assets (CNY Millions)	98,840	115,685	122,183	126,173	127,533
Total Equity (CNY Millions)	30,025	36,247	42,891	45,508	48,829
Net Debt (CNY Millions)	24,306	22,621	15,052	5,198	233
Net Debt-to-Equity Ratio	81.0%	62.4%	35.1%	11.4%	0.5%
Return On Capital Employed	6.8%	5.1%	3.9%	4.7%	5.6%
Return On Equity	10.9%	6.9%	5.0%	6.6%	8.0%
Operating Margin	11.7%	12.8%	10.6%	11.8%	13.7%
EBITDA Margin	13.4%	14.9%	12.7%	13.8%	15.6%

Key Projects and Incremental Cement Demand

Project Type	Project Name	Total Investment (Rmb bn)	Timeline	Estimated Total Cement Demand (mmt)
Airport	Beijing New Airport + Industry zone	84	Start in 2H14, completed by 2018	12.0
Airport	Airport express for New Beijing airport	19.7	Completed in 2018	2.2
Highway	Qugang Highway (Quyang-Huanghua Port)	na	Start in 2015	0.9
Highway	Northern China Section of Beijing-Xinjiang Highway (Beijing-Hohhot)	na	Start in 2015	3.4
Highway	Xifu Highway (Xibaipo-Fuping)	na	Start in 2015	0.6
Highway	Shijiazhuang South Ring Road (Highway)	na	Start in 2015	0.5
Others	Hengshui Section of the South-to-north Water Diversion Project	na	Start in 2015	2.5
Others	Tianjin Free Trade Zone New	40-60	2013-2018	5.0
Total				71.2

Key Risks

• Downside Risks:
  1. Weaker-than-expected property market
  2. Weaker-than-expected cement demand
  3. Higher-than-expected coal prices

Analyst Certification

• Matty Zhao certifies that the views expressed in this report accurately reflect his personal views about the subject securities and issuers.
• Conflict of Interest: BofA Merrill Lynch does business with companies covered in its research reports, which may affect the objectivity of the report.

Company Description

BBMG operates in four main areas: cement & concrete, modern building materials, property development, and property investment. It is a major cement producer in Northern China, with 90% of its capacity based there, and a leading property player in Beijing.

Conclusion

BBMG is viewed positively for its potential recovery in both the cement and property segments, supported by BTH integration, SOE reform, and improved market conditions. The H-share is currently undervalued relative to the A-share, offering a discount of $56%$ and potential upside if industrial land conversion proceeds as expected.