20160620-中国银河国际证券-China_Cement_Weekly_12页_1mb

China Cement Sector Summary

Core Content

The China cement sector experienced a short-term decline in prices during the summer rainy season, with a nationwide average drop of 0.25% week-on-week to RMB257.25/tonne. This trend was influenced by the traditional rainy season, which typically reduces construction activity and, consequently, cement demand. However, the overall momentum remains driven by infrastructure development. In May 2016 (5M16), cement production increased by 3.7% YoY to 885 million tonnes, with May alone seeing a 2.9% YoY growth. Despite the rain, infrastructure investment continued to show improvement, while property development and investment growth remained capped due to stringent policies since April. Property investment growth for 5M16 was a gentle upward trend but 0.2ppt lower than that of 4M16.

Key Trends and Information

• Cement Prices:

  • Nationally, prices continued a mild downward trend in June due to the rainy season.
  • In the Pearl River Delta, prices rose by RMB15/tonne, while in the Yangtze River Delta, prices fell by RMB10-20/tonne.
  • Short-term weakness in cement prices is expected in east China due to the traditional rainy season.

• Coal Prices:

  • The comprehensive average price index for Bohai Rim Steam Coal (Q5500K) stabilized at RMB400/tonne.
  • YoY, the index was 4.3% lower.

• Market Sentiment:

  • Overall market sentiment remained weak.
  • Cement stocks under coverage dropped an average of 5.5%.
  • Anhui Conch (0914.HK) was the best performer, down 4.4%.
  • CNBM (3323.HK) was the weakest, falling 6.6%.

Valuation Table Highlights

Simple Average:

• PER (x): 14.3, 8.4, 8.3
• EV/EBITDA (x): 8.2, 7.2, 7.0
• Net Debt/Equity (%): 87

Weighted Average:

• PER (x): 13.5, 8.7, 8.6
• EV/EBITDA (x): 7.8, 6.4, 6.1
• Net Debt/Equity (%): 47

EPS Growth and ROE

Peer Comparison

Regional Cement Price Trends

• East China:

  • Anhui: 53.0% market share
  • Jiangsu: 5.6%
  • Shandong: 1.3%
  • Zhejiang: 5.1%
  • Total: 17.7%

• South Central China:

  • Guangdong: 16.2%
  • Guangxi: 22.0%
  • Hainan: 0.0%
  • Hunan: 26.4%
  • Total: 12.1%

• North China:

  • Hebei: 0.0%
  • Shanxi: 0.0%
  • Inner Mongolia: 0.0%
  • Total: 0.0%

• Northeast China:

  • Heilongjiang: 0.0%
  • Jilin: 0.0%
  • Liaoning: 0.0%
  • Total: 0.0%

• Southwest China:

  • Chongqing: 3.2%
  • Sichuan: 4.4%
  • Guizhou: 9.6%
  • Yunnan: 3.0%
  • Total: 20.2%

• Northwest China:

  • Gansu: 3.2%
  • Shaanxi: 5.1%
  • Qinghai: 0.0%
  • Ningxia: 0.0%
  • Xinjiang: 0.4%
  • Total: 8.7%

Market Share in Terms of Clinker Capacity (2015)

• East China:

  • Anhui Conch: 53.0%
  • CNBM: 11.3%
  • CR Cement: 0.0%
  • Shanshui: 0.0%
  • BBMG: 0.0%
  • TCCI: 0.0%
  • Asia Cement: 0.0%
  • WCC: 0.0%
  • Sinoma Group: 6.3%
  • Jidong: 0.0%
  • Huaxin: 0.0%

• South Central China:

  • Guangdong: 16.2%
  • Guangxi: 8.5%
  • Hainan: 0.0%
  • Hunan: 27.8%
  • Hubei: 0.0%
  • Henan: 15.9%
  • Total: 12.1%

Key Recommendations

• Anhui Conch and BBMG are recommended as BUY due to their strong infrastructure-driven demand and relatively stable market positions.
• CNBM is rated HOLD and showed the weakest performance in the week.
• The overall market sentiment is weak, with cement stocks declining on average, but the long-term outlook remains positive for the sector due to sustained infrastructure investment and stable property development.

Conclusion

The cement sector in China faces short-term price weakness due to the summer rainy season, which impacts construction activity. However, the underlying demand from infrastructure continues to support the industry. Despite this, property development growth is constrained by policy pressures. The sector's valuation remains attractive for certain companies, particularly Anhui Conch and BBMG, with a positive outlook for their performance in the coming months.