20180813-中国银河国际证券-华润水泥控股-01313.HK-Q2_Recurring_Net_Profit_Surged_120__Reiterate_BUY_6页_1mb

China Resources Cement [1313.HK] Summary

Core Content

China Resources Cement (CR Cement) reported a recurring net profit of HK$2.28 billion in Q2 2018, representing a 120% year-over-year (YoY) increase. This strong performance was driven by a 35.6% YoY rise in blended ASP (average selling price) for cement and clinker, along with effective cost management. Operating expenses only increased by 6.2% YoY, significantly lower than the 41.1% YoY revenue growth, highlighting the company's ability to maintain profitability despite rising costs.

The company moderately raised its 2018E/2019E recurring EPS by 6.9% and 9%, respectively. This adjustment was primarily due to impressive cost control and the revised down ASP forecasts caused by RMB depreciation. The target price was increased to HK$11.40, which is equivalent to 2x 2018E PBR and 9.5x 2018E PER, indicating a positive outlook.

The company is currently trading at 7.6x 2018E PER and a 6.5% 2018E dividend yield, which the analysts consider undemanding. Given that 1H18 net profit already accounted for 54% of the full-year Street estimates, and with 2H profit typically higher due to seasonality, the analysts expect another round of upward revisions in the consensus forecast.

Main Points

• Q2 2018 Performance:

  • Recurring net profit surged by 120% YoY to HK$2.28 billion.
  • Blended ASP increased to HK$392/tonne from HK$383/tonne in Q1 2018.
  • Sales volume of cement and clinker rose by 6.3% YoY to 22.4m tonnes.
  • Cost per tonne decreased from HK$236 to HK$216, and blended gross profit per tonne increased from HK$148 to HK$176.

• Cost Control:

  • Operating expenses grew only 6.2% YoY, outperforming the 41.1% revenue growth.
  • The company effectively managed its costs, which helped offset the impact of RMB depreciation.

• Outlook for 2H18:

  • Guangdong and Guangxi, key operating regions, showed strong FAI (Financial and Administrative Income) growth of 10.1% and 11.5% YoY, respectively, outperforming the national average of 6%.
  • These regions are expected to maintain resilient cement prices in 2H18 due to limited new supply of clinker production capacity.

• Earnings and Valuation:

  • The target price was raised to HK$11.40 (+25%).
  • The company is trading at 7.6x 2018E PER and 1.59x 2018E PBR, which are seen as undervalued.
  • Analysts believe the company has potential for further earnings upgrades as 2H profit is usually higher due to seasonality.

Key Financials

Income Statement Highlights (HK$'000)

EPS and Profit Growth

• Recurring EPS for 2018E is HK$1.20, with a 119.8% YoY increase.
• EPS growth is projected at 119.8% for 2018E and 3% for 2019E.

Margins and Ratios

Regional Performance

• Guangdong:

  • Cement volume increased by 9.1% YoY to 8,021,000 tonnes.
  • ASP rose by 40.0% YoY to HK$434.7.
  • Revenue increased by 52.8% YoY to HK$3,486,328,000.

• Guangxi:

  • Cement volume increased by 14.8% YoY to 6,473,000 tonnes.
  • ASP rose by 39.7% YoY to HK$360.9.
  • Revenue increased by 60.4% YoY to HK$2,336,036,000.

• Fujian:

  • Cement volume increased by 34.5% YoY to 2,618,000 tonnes.
  • ASP rose by 50.5% YoY to HK$399.5.
  • Revenue increased by 102.5% YoY to HK$1,045,962,000.

• Hainan:

  • Cement volume decreased by 7.3% YoY to 1,343,000 tonnes.
  • ASP increased by 22.7% YoY to HK$438.9.
  • Revenue increased by 13.8% YoY to HK$589,380,000.

• Shanxi:

  • Cement volume increased by 17.7% YoY to 885,000 tonnes.
  • ASP increased by 7.6% YoY to HK$281.7.
  • Revenue increased by 26.6% YoY to HK$249,294,000.

• Yunnan:

  • Cement volume increased by 8.6% YoY to 1,484,000 tonnes.
  • ASP increased by 13.9% YoY to HK$372.
  • Revenue increased by 23.7% YoY to HK$552,277,000.

• Guizhou:

  • Cement volume increased by 44.6% YoY to 723,000 tonnes.
  • ASP increased by 30.2% YoY to HK$337.
  • Revenue increased by 88.2% YoY to HK$243,427,000.

Market and Financial Overview

• Market Cap: US$8,095m
• Shares Outstanding: 6,983m
• Auditor: Deloitte
• Free Float: 31.3%
• 52W Range: HK$4.27–10.38
• 3M Average Daily T/O: US$50.5m

Analysts and Contact

• Wong Chi Man—Head of Research

  • Phone: (852) 3698-6317
  • Email: cmwong@chinastock.com.hk

• Mark Lau - Research Analyst

  • Phone: (852) 3698-6393
  • Email: marklau@chinastock.com.hk

Investment Highlights

• The company is expected to see another round of earnings upgrades.
• The dividend yield is at 6.5% for 2018E, which is attractive.
• Valuation metrics such as PER and PBR are seen as undemanding, with the target price at HK$11.40.

Disclaimer and Disclosure

• The report is issued by Galaxy International Securities and is not directed at individuals or entities in jurisdictions where it would be unlawful.
• The report is based on reliable information sources, but no guarantees are made regarding accuracy.
• The analysts may have financial interests in the company, with holdings potentially equal to or more than 1% of the market cap.
• The analysts may have participated in financing transactions or provided investment advice to the company.