20161031-中国银河国际证券-China_Cement_Weekly_Strong_Price_Hike_amid_Limited_Market_Supply__More_Production_Suspension_to_Come_Soon_in_North_China_12页_980kb

China Cement Sector Summary

Core Content

The China cement sector is experiencing a strong price increase due to limited market supply and rising coal costs. The average cement price nationwide rose by 2% week on week to RMB308/tonne last week. In regions such as Tianjin, Hebei, Shandong, Fujian, and Guangxi, prices increased by RMB30-70/tonne. The price hike is supported by the reduction in daily shipment volume due to continuous rainfall in late October. The average inventory level climbed slightly to 66.50%.

Coal prices have also been on the rise, with the comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) increasing by RMB16/tonne to RMB593/tonne over the last two weeks, representing a 56% year-on-year (YoY) increase.

Main Points

• Cement Price Hike:

  • Nationwide average price increased by 2% week on week to RMB308/tonne.
  • Prices in key regions (Tianjin, Hebei, Shandong, Fujian, Guangxi) rose by RMB30-70/tonne.
  • Reduced shipment volume due to late October rainfall contributed to the price increase.
  • Inventory levels increased slightly to 66.50%.

• Production Suspension:

  • 187 cement factories in Henan will suspend production from November to January next year due to stricter environmental protection requirements.
  • Similar production halts are expected in parts of Beijing, Tianjin, Hebei, Shanxi, and Shandong.
  • Supply reduction in these areas is estimated at ~100 million tonnes, which will further support average selling price (ASP) in both northern and southern regions.

• Stock Performance:

  • Cement stocks under coverage rose on average by 2.6% last week.
  • CR Cement [1313.HK; BUY] was the best performer, rising by 3.3%.
  • CNBM [3323.HK; HOLD] was the weakest, with a 2.0% gain.

• Company Analysis:

  • Anhui Conch [0914.HK; BUY]: Expected to benefit the most from the production suspension in nearby regions. The company has the highest market cap (US$m13,473) and is projected to have the highest EPS growth (45.1% in 2016E, 11.0% in 2017E).
  • BBMG [2009 HK Equity; BUY]: As a major player in northern China, it will benefit from higher ASP due to reduced supply, though winter production volume may limit overall earnings impact.
  • CNBM [3323 HK Equity; HOLD]: Recorded a 2.0% gain, with a high EPS growth of 223.0% in 2016E and 22.4% in 2017E, but the lowest rating of HOLD.
  • CR Cement [1313 HK Equity; BUY]: The best performer, with a 3.3% increase, and a relatively high EPS growth of 25.7% in 2016E.

Key Information

• Valuation Table:

  • Anhui Conch has the highest market cap and lowest PER (15.1 in 2015, 11.2 in 2016E, 10.5 in 2017E).
  • BBMG has a lower market cap but still shows strong performance in terms of EPS growth and PEG ratio.
  • CNBM has the lowest EPS growth (223.0% in 2016E) and the highest PBR (0.38 in 2015, 0.37 in 2016E, 0.35 in 2017E).

• Regional Clinker Capacity:

  • Anhui Conch dominates the East China region, with a 53.0% market share in Anhui and 17.7% overall.
  • CR Cement has a significant presence in Jiangsu (26.5%) and Zhejiang (56.6%).
  • BBMG and CNBM have substantial shares in North China and South Central China, respectively.

• Market Share by Region:

  • East China: Anhui Conch (53.0%), CNBM (25.4%), CR Cement (1.4%), BBMG (6.2%).
  • South Central China: Guangdong (16.2%), Guangxi (22.0%), Hunan (26.4%), Hubei (8.5%), Henan (15.9%).
  • North China: BBMG has a 100.0% market share in Beijing, while CNBM has a 100.0% share in Hebei.

Summary Table

Conclusion

The cement sector in China is currently experiencing a strong price increase, driven by limited supply and rising coal costs. The production suspension in northern regions is expected to further support ASP, benefiting companies like Anhui Conch and BBMG. The stock market is showing moderate gains, with CR Cement leading the pack. Anhui Conch appears to be the biggest beneficiary due to its geographical proximity to the production suspension areas, allowing it to absorb some of the regional supply reduction.