20180604-中国银河国际证券-China_Cement_Weekly__Industry_Association_to_Launch_Inspections__Low_Inventory_Levels_Continued_to_Support_Cement_Prices_12页_659kb

China Cement Sector Summary

Core Content

The China Cement Sector report provides an overview of recent market trends, including cement price movements, production line inspections, stock performance, valuation metrics, and regional market share data. It also includes a disclaimer and disclosure of interests related to the research and investment activities of China Galaxy International Securities.

Main Views

• Cement Price Trends:
  The average cement price nationwide increased by 0.3% to RMB417/tonne from the previous week.

  • Regions with price increases: Jiangxi, Guangxi, Gansu, and northern Jiangsu.
  • Regions with price declines: Suzhou, Wuxi, and Changzhou in Jiangsu province, with a decline of about RMB10/tonne.
  • Inventory levels: The average inventory level remained at 54%, supporting price resilience.
  • Coal prices: The Bohai-Rim Steam Coal (Q5500K) price dropped slightly to RMB570/tonne over the past month, with a 1.7% year-on-year decline.

• Production Line Inspections:
  The China Cement Association and China Building Materials Association plan to inspect cement production lines nationwide in the next few months.

  • The purpose is to identify unapproved production lines and those with excessive capacity.
  • Findings will be reported to the State Council in October, indicating a strong industry effort to control overcapacity.

• Stock Performance:

  • Cement stocks under coverage dropped by 1.3% on average last week.
  • Conch Cement was the best performer, with a 2.1% increase in share price.
  • BBMG was the weakest, with a 4.8% decline.

• Valuation Metrics:
  The report includes PER, PBR, and EV/EBITDA for key cement companies.

  • Conch Cement: PER (2017-2019E) = 15.0 - 9.5, PBR (2017-2019E) = 2.43 - 1.82, EV/EBITDA (2018E) = 8.5.
  • CINBM: PER (2017-2019E) = 11.8 - 6.8, PBR (2017-2019E) = 0.89 - 0.53, EV/EBITDA (2018E) = 9.1.
  • BBMG: PER (2017-2019E) = 12.1 - 7.7, PBR (2017-2019E) = 0.63 - 0.53, EV/EBITDA (2018E) = 11.4.
  • CR Cement: PER (2017-2019E) = 16.7 - 7.9, PBR (2017-2019E) = 1.97 - 1.53, EV/EBITDA (2018E) = 9.9.
  • Simple Average: PER = 13.9 - 8.0, PBR = 9.7 - 6.9, EV/EBITDA = 9.1 - 6.3.
  • Weighted Average: PER = 14.4 - 8.7, PBR = 9.1 - 6.4, EV/EBITDA = 38 - 38.

• EPS Growth and PEG:

  • Conch Cement: EPS Growth (2018E-2019E) = 54.0% - 0.5%, PEG = 0.4.
  • ONBM: EPS Growth (2018E-2019E) = 69.3% - 1.2%, PEG = 0.2.
  • CR Cement: EPS Growth (2018E-2019E) = 110.7% - 0.4%, PEG = 0.2.
  • BBMG: EPS Growth (2018E-2019E) = 44.2% - 7.1%, PEG = 0.3.
  • Simple Average: EPS Growth = 69.5% - 2.3%, PEG = 0.3.
  • Weighted Average: EPS Growth = 63.5% - 1.4%, PEG = 0.3.

• ROE and Dividend Yield:

  • Conch Cement: ROE (2017-2019E) = 22.94% - 20.12%, Dividend Yield (2017-2019E) = 2.9% - 5.2%.
  • ONBM: ROE (2017-2019E) = 12.10% - 11.10%, Dividend Yield (2017-2019E) = 1.3% - 2.9%.
  • CR Cement: ROE (2017-2019E) = 26.69% - 23.10%, Dividend Yield (2017-2019E) = 3.0% - 6.3%.
  • BBMG: ROE (2017-2019E) = 6.93% - 7.00%, Dividend Yield (2017-2019E) = 2.0% - 2.8%.
  • Simple Average: ROE = 10.83% - 17.17%, Dividend Yield = 2.3% - 4.3%.
  • Weighted Average: ROE = 13.90% - 20.00%, Dividend Yield = 2.6% - 4.8%.

• Regional Market Share in Clinker Capacity (2017):

  • East China: Anhui Conch (20.0%), CNBM (25.7%), CR Cement (1.5%), Shanshui (5.5%), BBMG (0.5%).
  • South Central China: Guangdong (11.6%), Guangxi (21.5%), Hainan (0.3%), Hunan (10.9%), Hubei (0.7%), Henan (2.4%).
  • North China: Beijing (0.0%), Tianjin (0.0%), Hebei (0.0%), Shanxi (5.8%), Inner Mongolia (30.4%), Total (6.7%).
  • Northeast China: Heilongjiang (61.2%), Jilin (24.6%), Liaoning (4.8%), Total (22.3%).
  • Southwest China: Chongqing (11.7%), Sichuan (7.8%), Guizhou (20.4%), Yunnan (8.4%), Tibet (47.8%), Total (11.7%).
  • Northwest China: Gansu (14.2%), Shaanxi (16.3%), Qinghai (0.0%), Ningxia (0.0%), Xinjiang (6.0%), Total (7.5%).
  • Grand Total: Anhui Conch (11.1%), CNBM (16.0%), CR Cement (3.6%), Shanshui (2.9%), BBMG (5.6%), Asia Cement (0.9%), WCC (1.0%), Huaxin-Lafarge (2.8%), Sinoma Group (4.7%).

Key Information

• Price Resilience: Supported by low inventory levels, cement prices have remained resilient despite regional fluctuations.
• Inspections: The China Cement Association is conducting inspections to control overcapacity, which is a key industry concern.
• Market Performance: The sector's stock performance was mixed, with Conch Cement outperforming and BBMG underperforming.
• Valuation Trends: Valuation metrics (PER, PBR, EV/EBITDA) indicate mixed expectations for future performance.
• Regional Dynamics: East China and South Central China are the main contributors to clinker capacity, with Anhui Conch and CNBM leading in East China.
• Investment Risks: The report emphasizes the importance of understanding risks and consulting financial advisors before making investment decisions.

Analysts

• Wong Chi Man – Head of Research
  Contact: (852) 3698-6317 | cmwong@chinastock.com.hk
• Mark Lau – Research Analyst
  Contact: (852) 3698-6393 | marklau@chinastock.com.hk

Disclaimer and Disclosure

• The report is not for distribution in jurisdictions where it may violate laws.
• Reliability of Information: The report is based on reliable sources, but no guarantees are made regarding accuracy or completeness.
• Conflicts of Interest: China Galaxy International Securities may have financial interests in the companies mentioned.
• Analyst Certification: The analyst certifies that the views in the report reflect their personal opinions, and that no compensation is tied to the report's content.
• Equity Ratings:
  • BUY: Expected share price increase of >20% within 12 months.
  • SELL: Expected share price decrease of >20% within 12 months.
  • HOLD: No clear catalyst, and downgraded from BUY pending further signals.

Sources

• Bloomberg
• CGIS Research
• Digital Cement
• China Cement Association
• China Galaxy International Financial Holdings Limited

Conclusion

The report highlights the current state of the China Cement Sector, emphasizing price stability, capacity control, and investment dynamics. It provides valuation data, stock performance, and regional market share, offering insights into the industry landscape and investment opportunities. The disclaimer and disclosure sections ensure transparency regarding potential conflicts and report limitations.