20130826-巴黎银行证券-Top_priority__Deleverage_11页_669kb

CNBM (3323 HK) Company Report Summary

Core Content

This report provides an in-depth analysis of China National Building Materials (CNBM), a key player in the building materials sector. The main focus is on the company's strategic initiatives, financial performance, valuation metrics, and risk factors.

Main Points

1. Deleveraging as a Priority

• CNBM is targeting significant cost reductions to improve its financial leverage.
• The company aims to cut unit production cost by RMB10/t (from RMB190/t to RMB180/t) in the second half of 2013.
• The long-term goal is to reduce unit costs further to RMB10/t, which is expected to be lower than Anhui Conch's cost.

2. Cost Reduction Strategies

• The cost-cutting plan includes:
  • Replacing alternative raw materials to save RMB5-8/t.
  • Lowering coal prices.
  • Centralizing purchases.
  • Reducing unit fixed costs.

3. Revenue and Earnings Outlook

• Revenue for 2013E is estimated at RMB113,514 million, up from RMB113,514 million in 2013.
• Recurring net profit is expected to be RMB5,333 million for 2013E and RMB6,028 million for 2014E.
• Recurring EPS for 2013E is RMB0.99, and for 2014E it is RMB1.12.

4. Valuation and Target Price

• The target price is raised to HKD9.50 (from HKD9.20), representing a 32% upside potential.
• The target price is based on the average of residual income and asset/earnings multiples.
• Earnings are expected to increase by 4.5% in 2013E and 6.4% in 2014E.

5. Market Performance

• Share price performance for the past 12 months was -8.3%.
• The stock has a 3m historic volatility of 38.3%.
• The market cap is USD5,006 million, with a 3m average daily turnover of USD44.0 million.

6. Sector Correlation

• CNBM is correlated with the MXCN Index and has a R Square of 0.5007.
• The stock is considered more than sector-driven and may be re-rated if deleveraging is successful.

Key Information

7. Valuation Metrics

• Recurring P/E: 5.7 (2013E), 5.1 (2014E), 4.9 (2015E).
• EV/EBITDA: 7.8 (2013E), 7.5 (2014E), 7.3 (2015E).
• Price/book: 0.9 (2013E), 0.8 (2014E), 0.7 (2015E).
• Net debt/equity: 286.4% (2013E), 251.1% (2014E), 216.4% (2015E).

8. Earnings Drivers

• CNBM is equally sensitive to changes in unit cost and ASP (average selling price).
• Sales volume is not the key driver for earnings growth.
• The report highlights that profit growth will mainly come from cost cuts rather than price increases.

9. EPS Sensitivity

• A RMB5/t cut in unit cost would result in a 20% change in EPS.
• A +10mt increase in SW Cement sales would result in a 4% change in EPS.
• A +RMB5/t increase in ASP would result in a 22% change in EPS.

10. Risk Factors

• Downside risks include continued slowdown in FAI (financial assets investment), substantial reduction in RMC (revenue from materials) profitability, and potential equity dilution.
• The report notes that the 7% return on preferred equity may not attract private equity investors.

11. Deleveraging Plan

• CNBM aims to complete the majority of its acquisition payments by 1H14.
• The company plans to reduce capex from RMB25 billion in 2013 to RMB10 billion in 2014, saving 12%.
• Operating cash flow is estimated at RMB18 billion, which should help in gradual deleveraging.

12. Dividend Yield

• Dividend yield is expected to increase from 2.6% in 2013E to 3.0% in 2014E and 2015E.

Summary Table

Analyst and Contact

• Analyst: Rachel Cheung
• Email: rachel.cheung@asia.bnpparibas.com
• Phone: +852 2825 1824

Conclusion

CNBM's primary strategy involves cost reduction and deleveraging, with a target price of HKD9.50 based on improved earnings estimates and a re-rating potential if the deleveraging is successful. The company's financial performance and valuation metrics suggest a positive outlook, but risks such as reduced profitability and potential equity dilution remain.