China Cement Sector 2018 Outlook Summary
Core Content
This report provides an outlook for the China cement sector in 2018, highlighting the positive trends and key investment opportunities. It discusses the impact of supply-side reforms, environmental policies, and market concentration on cement prices and company performance. The report also includes stock recommendations and valuation metrics for major cement companies.
Main Points
Sector Outlook
- Upbeat Expectations: The cement sector is expected to remain positive in 2018.
- Production Volume: Cement production volume is projected to remain largely flat, with a slight YoY drop of 1% to 2.37bn tonnes.
- Price Trends: Cement prices are anticipated to benefit from improved demand-supply balance and continued capacity elimination, leading to moderate price increases.
Capacity Elimination
- Utilization Rate: The utilization rate of new suspension preheater (NSP) clinker capacity rebounded to 71.7% in 2017, indicating progress in reducing overcapacity.
- Capacity Reduction: NSP clinker capacity decreased by 46m tonnes in 2017, and further reductions are expected between 2018 and 2020 (3.93m tonnes), supporting price upside.
- Market Concentration: The top 5 players’ market share increased from 39.4% in 2012 to 43.8% in 2017, and is expected to continue rising, enhancing pricing power.
Real FAI Growth and Political Factors
- Real FAI Correlation: Cement demand closely correlates with real fixed asset investment (FAI) growth.
- 2018 FAI Growth: Real FAI growth is expected to be 2.4% YoY, a moderate slowdown from 2.6% in 2017.
- Political Influence: The 2017 Party Congress is expected to lead to stable FAI growth in 2018, avoiding a sharp slowdown.
Stock Recommendations
- Top Pick: CNBM is highlighted as the top pick for 2018 due to its high operating leverage and projected 36% EPS growth.
- Other Picks: Conch Cement and CR Cement are also recommended, with the latter offering an attractive dividend yield of 5%.
- Hold Recommendation: BBMG is maintained on HOLD due to its lower earnings sensitivity and conglomerate structure.
Key Information
Company Performance
| Company |
Ticker |
Last Price (HK$) |
Target Price (HK$) |
Rating |
| Conch Cement |
914 |
40.25 |
47.00 |
BUY |
| CNBM |
3323 |
7.90 |
9.72 |
BUY |
| CR Cement |
1313 |
5.66 |
6.60 |
BUY |
| BBMG |
2009 |
3.99 |
4.45 |
HOLD |
Valuation Metrics
| Company |
Market Cap (US$m) |
PER (2016) |
PER (2017E) |
PER (2018E) |
PBR (2016) |
PBR (2017E) |
PBR (2018E) |
EV/EBITDA (2016) |
EV/EBITDA (2017E) |
EV/EBITDA (2018E) |
| Conch Cement |
26,881 |
22.1 |
12.9 |
10.9 |
2.43 |
2.03 |
1.84 |
11.6 |
8.0 |
6.7 |
| CNBM |
5,468 |
39.9 |
11.3 |
8.5 |
0.89 |
0.80 |
0.76 |
11.2 |
8.7 |
7.7 |
| BBMG |
9,158 |
16.0 |
12.2 |
10.1 |
0.84 |
0.80 |
0.74 |
15.6 |
10.2 |
8.7 |
| CR Cement |
4,741 |
19.7 |
9.9 |
9.2 |
1.42 |
1.29 |
1.20 |
10.5 |
7.2 |
6.9 |
EPS Growth and PEG
| Company |
2017E EPS Growth (%) |
2018E EPS Growth (%) |
CAGR (%) |
PEG (2016) |
PEG (2018E) |
| Conch Cement |
66.3 |
21.5 |
42.2 |
11.48 |
8.78 |
| CNBM |
243.8 |
35.7 |
116.0 |
11.48 |
8.78 |
| CR Cement |
98.9 |
7.8 |
46.4 |
7.14 |
7.14 |
| BBMG |
27.2 |
23.7 |
25.5 |
5.64 |
5.64 |
Dividend Yield and ROE
| Company |
2018E Dividend Yield (%) |
2017E ROE (%) |
2018E ROE (%) |
| Conch Cement |
3.0 |
16.92 |
17.92 |
| CNBM |
3.2 |
11.48 |
12.07 |
| CR Cement |
5.0 |
13.67 |
13.55 |
| BBMG |
1.7 |
6.48 |
7.54 |
Conclusion
The China cement sector is expected to perform well in 2018, supported by continued capacity elimination, improving utilization rates, and increasing market concentration. CNBM is highlighted as the top pick due to its high earnings sensitivity and potential for significant EPS growth. Conch Cement and CR Cement are also recommended, while BBMG is advised to be held due to lower sensitivity to price changes and limited near-term catalysts.
