20161107-中国银河国际证券-Price_Rise_Continued,_Supported_by_Increasing_Demand_Industry_Profit_Saw_a_Strong_Recovery_in_Q3_2016_12页_982kb

China Cement Sector Summary

Core Content

The China cement sector experienced a continued price rise in the third quarter of 2016, driven by increasing demand and industry coordination efforts. This was accompanied by a strong recovery in industry profits, indicating a positive trend in the sector.

Main Points

• Cement Prices:
  The average cement price nationwide increased by 1.6% week-on-week to RMB313/tonne, representing a 16% YoY rise.
  Prices in parts of Beijing, Hebei, Fujian, Hunan, Yunnan, and Guizhou rose by RMB30-50/tonne, while Jilin saw a RMB20/tonne decline.
  Better weather in southern China improved demand in some regions, while the northeast and northwest saw a significant decline due to the approaching winter season.
  Production suspensions in Hebei, Shandong, and Henan were delayed until mid-November to support market demand.

• Coal Prices:
  Coal prices continued to rise, with the Bohai-Rim Steam Coal (Q5500K) index increasing by RMB14/tonne to RMB607/tonne, up 60% YoY.

• Industry Profit:
  Industry profit for the first nine months of 2016 reached RMB24.87bn, a 34% YoY increase.
  Profit growth in September was the highest of the year, with RMB6.3bn, a 130% increase compared to August.
  The industry margin rose by 0.6ppt to 4.1%, though it was still slightly lower than the national average for the secondary industry (5.67%).

• Market Performance:
  Cement stocks under coverage rose on average by 2.6%.
  CR Cement and Anhui Conch were the best performers, each rising by 3.5%, while BBMG was the weakest, rising by 0.3%.

• Valuation and Financials:
  The simple average PER for 2015-2017E was 9.1, while the weighted average PER was 8.8.
  The weighted average EV/EBITDA was 8.7, and the net debt/equity ratio averaged 43%.
  Anhui Conch and CR Cement were rated BUY, while ONBM was rated HOLD.

• Market Share:
  The market share in terms of clinker capacity is distributed across different regions, with Anhui Conch and CNBM holding significant shares in East China.
  In South Central China, Guangxi and Hunan showed strong regional exposure.
  In North China, Hebei and Shandong were key markets, while BBMG and TCCI had notable shares in Southwest China.

Key Information

• The cement sector's performance in Q3 2016 suggests a recovery trend, attributed to supply-side reforms and industry coordination.
• The recovery is expected to continue into Q4 2016, with upside in both sales volume and ASP (Average Selling Price).
• Anhui Conch and CR Cement are highlighted as top recommendations due to their peak season performance in their operating regions.
• The market share in clinker capacity varies significantly by region and company, reflecting the regional concentration of production and sales.
• Valuation metrics such as PER, EV/EBITDA, and net debt/equity were used to evaluate the sector's performance and future potential.