高盛-中国-基础材料行业-2018年9月：季节性回归-20180920-38页_1mb

China Basic Materials Monitor Summary (September 2018)

Core Content

The China Basic Materials Monitor for September 2018 indicates a return to solid seasonality in downstream sectors and most commodities, following two weak quarters in 2Q18 and 3Q18. This improvement is attributed to normal seasonal recovery observed in broader downstream segments.

Main Views

• Downstream Orderbook Trends:

  • There was a significant improvement in the month-on-month (MoM) trend of downstream sectors in September.
  • 92% of respondents reported an improvement in orderbooks in September, compared to 14% in August.
  • Nil respondents expected a decline in September, compared to 21% in August.
  • The improvement suggests a stronger seasonal demand, which is a positive sign for the market.

• Inventory Levels:

  • Inventory levels at producers are mostly at or below normal for basic materials and most finished products.
  • Inventory for iron ore, hard coking coal, and OCC is at normal levels and stable.
  • Aluminum inventory is above normal and increasing.
  • Cement, copper, alumina, and coal inventory is below normal and decreasing.
  • Containerboard inventory is below normal but stable.
  • The trend indicates that inventory is improving for some sectors, while declining for others, reflecting the seasonal demand patterns.

Key Information

• Winter Capacity Suspension Plan:

  • The plan has become more complex to avoid a "one-size-fits-all" approach.
  • The top-down focus on air quality improvement remains unchanged.
  • The air-quality ranking system is still in place, maintaining supply discipline.

• Sector Preferences:

  • The steel sector is preferred due to its attractive risk/reward profile.
  • Paper and aluminum are also favored based on the supply/demand outlook.
  • CR Cement is the least favored, with a sell rating, due to a less positive sector outlook and downside to the share price.

• Stock Picks:

  • Among Hong Kong-listed names, Angang-H (on Conviction List) and Chalco-H are top picks based on target price upside and risk-adjusted performance.
  • Among A-share listed names, Baosteel is the top pick due to higher earnings visibility, strong cash flow, and higher dividend payout.

• Target Price Methodologies:

  • Target prices are based on a 12-month timeframe.
  • The report includes target prices for various companies, such as Angang-H, Baosteel, and others, along with rating and upside potential.

Commodity Price Trends

• Base Metals:

  • AI-LME and Cu-LME show varying price forecasts and year-on-year (YoY) changes.
  • Zinc and Nickel also exhibit different price trends and YoY performance.

• Bulk Commodities:

  • Oil-WTI, IO fines - China CIF, and HCC have specific price forecasts and YoY changes.
  • Thermal coal-NEWC and Thermal (QHD5500-blended) show different price movements and YoY changes.

• China-Specific Prices:

  • Steel-HRC, Steel-CRC, and Steel-rebar have price forecasts and YoY changes.
  • AI-SHFE, Cu-SHFE, and China Alumina also show price trends and YoY performance.

Additional Notes

• Disclosure: Goldman Sachs has a conflict of interest due to its business relationships with companies covered in the report.
• Regulatory Compliance: Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
• Report Date: Prices in the report are as of September 19, 2018, unless stated otherwise.

Summary Table of Key Companies

| Company | Ticker | Price Target | Rating | Upside Vkt Cap | EPS (ccy/sh) | PE | PB | ROE | EV/EBITDA | FCF Yield | Div Yield | Perf. YTD |
|---------------|----------|--------------|--------|----------------|-------------|----|----|-----|--------|-----------|-----------|----------|----------|
| Angang-H | 0347.HK | 7.27 | Buy* | 50% | 6.71 | 6.9 | 0.8 | 12% | 5.6 | 9% | 20% | 5.0% | 2% |
| Angang-A | 000898.SZ| 5.96 | Buy | 81% | 6.29 | 7.8 | 0.9 | 12% | 6.5 | 9% | 21% | 5.3% | -11% |
| Baosteel | 600019.SS| 7.67 | Buy | 76% | 24.92 | 8.4 | 1.0 | 12% | 5.6 | 17% | 14% | 6.6% | -4% |
| Maanshan-H | 0323.HK | 3.92 | Buy | 38% | 3.85 | 5.3 | 0.9 | 19% | 3.7 | 20% | 25% | 6.3% | 6% |
| Maanshan-A | 600808.SS| 3.84 | Buy | 59% | 4.32 | 7.3 | 1.3 | 19% | 4.5 | 18% | 22% | 5.6% | -7% |
| Chinacoal-H | 1898.HK | 3.21 | Buy | 50% | 5.43 | 12.5 | 0.5 | 4% | 8.4 | 1% | 9% | 3.4% | -9% |
| Chinacoal-A | 601898.SS| 5.11 | Neutral| 12% | 9.89 | 22.6 | 0.9 | 4% | 10.5 | 0% | 6% | 1.9% | -11% |
| Yanzhou-H | 1171.HK | 8.75 | Neutral| 7% | 5.48 | 4.0 | 0.6 | 17% | 5.9 | 7% | 6% | 6.8% | -4% |
| Yanzhou-A | 600188.SS| 10.87 | Neutral| 15% | 7.79 | 8.1 | 1.3 | 17% | 7.5 | 6% | 5% | 4.8% | -25% |
| Conch-H | 0914.HK | 46.20 | Neutral| -5% | 31.21 | 8.3 | 1.5 | 19% | 5.0 | 9% | 8% | 5.2% | 26% |
| Conch-A | 600585.SS| 34.96 | Neutral| 14% | 27.04 | 7.7 | 1.4 | 19% | 4.6 | 11% | 10% | 4.8% | 19% |
| BBMG-H | 2009.HK | 2.67 | Buy | 72% | 3.63 | 12.3 | 0.7 | 6% | 11.2 | 13% | 20% | 3.4% | -25% |
| BBMG-A | 601992.SS| 3.67 | Buy | 50% | 5.72 | 22.8 | 1.3 | 6% | 14.2 | 10% | 15% | 4.8% | -32% |
| CNBM | 3323.HK | 6.73 | Buy | 60% | 7.24 | 7.7 | 0.5 | 7% | 8.1 | 26% | 20% | 5.7% | -4% |
| CRC | 1313.HK | 9.14 | Sell | -23% | 8.14 | 7.9 | 0.9 | 13% | 5.6 | 15% | 9% | 5.5% | 78% |
| WCC | 2233.HK | 1.36 | Neutral| 18% | 0.94 | 7.5 | 0.8 | 11% | 3.9 | 19% | 22% | 2.2% | 16% |
| Chalco-H | 2600.HK | 3.35 | Buy | 67% | 7.27 | 44.5 | 1.6 | 4% | 11.2 | -1% | 0% | 0.0% | -40% |
| Chalco-A | 601600.SS| 4.10 | Buy | 46% | 10.18 | 65.7 | 2.3 | 4% | 13.3 | -1% | 0% | 0.0% | -49% |
| Hongqiao | 1378.HK | 5.39 | Buy | 78% | 6.03 | 7.9 | 1.0 | 13% | 5.0 | 22% | 27% | 3.7% | -38% |
| JXC-H | 0358.HK | 8.94 | Neutral| 42% | 3.95 | 22.8 | 0.8 | 3% | 4.9 | -13% | 8% | 4.5% | -28% |
| JXC-A | 600362.SS| 14.23 | Neutral| 32% | 7.19 | 37.3 | 1.3 | 3% | 7.7 | -7% | 5% | 2.4% | -29% |
| MMG | 1208.HK | 3.59 | Buy | 75% | 3.66 | 21.6 | 0.8 | 13% | 6.0 | 21% | 25% | 0.0% | -7% |
| Chinamoly-H | 3993.HK | 3.17 | Neutral| 17% | 8.73 | 21.1 | 1.7 | 10% | 6.1 | -1% | 14% | 11% | -37% |
| Chinamoly-A | 603993.SS| 4.48 | Neutral| 25% | 14.12 | 40.0 | 3.2 | 10% | 10.6 | 8% | 13% | 5.5% | -35% |
| Zijin-H | 2899.HK | 2.74 | Buy | 42% | 8.05 | 21.6 | 1.6 | 11% | 6.0 | 10% | 12% | 14% | -7% |
| Zijin-A | 601899.SS| 3.55 | Buy | 38% | 11.93 | 23.3 | 2.4 | 11% | 8.5 | 7% | 8% | 2.8% | -23% |
| Zhaojin | 1818.HK | 5.96 | Sell | -9% | 2.35 | 29.4 | 1.4 | 5% | 14.8 | -3% | -1% | 1.0% | -40% |
| Lee & Man | 2314.HK | 7.89 | Buy | 52% | 4.54 | 7.1 | 1.6 | 26% | 6.5 | 12% | 15% | 5.8% | -15% |
| ND Paper | 2689.HK | 9.50 | Buy | 49% | 5.66 | 7.2 | 1.1 | 16% | 6.3 | -13% | 8% | 4.7% | -24% |

Conclusion

The September 2018 report highlights a return to solid seasonality in the downstream sectors and most commodities, with improved orderbook trends and inventory levels reflecting the seasonal demand. The steel sector is highlighted as a top preference, followed by paper and aluminum. The winter capacity suspension plan has become more nuanced to avoid a uniform policy, but the focus on air quality remains unchanged. Key stocks such as Angang-H, Baosteel, and Chalco-H are recommended, while CR Cement is advised to be sold.