20180212-中国银河国际证券-CNBM_and_Conch_Cement_Look_Appealing_after_Deep_Correction_Last_Week__Investment_Thesis_Still_Intact_12页_1mb

China Cement Weekly Summary - February 12, 2018

Core Content

This report provides an overview of the cement sector in China, highlighting price trends, market sentiment, and valuation analysis for major cement companies. It also includes a breakdown of regional cement prices and market share distribution across different regions in 2017.

Key Observations

Cement Price Trends

• National Average Cement Price: The national average cement price dropped by 1% week-on-week to RMB395/tonne.
• Regional Declines: Prices fell by RMB20-40/tonne in Shanghai, Jiangsu, Fujian, Yunnan, and Guizhou.
• Supply and Demand: The decline in demand due to the upcoming Chinese New Year holiday led to a moderate price drop. Cement supply is expected to decrease in February as southern plants begin off-peak production suspensions.
• Inventory Levels: The national average inventory level rebounded to 58.94%.

Coal Price Trends

• Bohai-Rim Steam Coal (Q5500K): The average price index dropped by RMB1/tonne to RMB576/tonne, a 2% year-on-year decline.

Valuation Analysis

Key Companies and Metrics

Valuation Highlights

• CNBM: Valuation at 0.63x 2018E PER and 7.1x 2018E PBR appears attractive.
• Conch Cement: 2018E PBR of 1.77x is below its historical average of 1.87x, suggesting good value for long-term investors.
• Cement Stocks Performance: On average, cement stocks fell by 16% last week. CR Cement was the best performer with a 12% drop, while CNBM was the weakest with a 24% decline, attributed to its high beta nature.

Market Share and Regional Breakdown

Clinker Capacity Breakdown by Region (2017)

• East China: Anhui Conch (46.2%), CNBM (41.3%), CR Cement (10.6%), Shanshui (5.5%), BBMG (0.5%).
• South Central China: Guangdong (25.7%), Guangxi (16.0%), Hainan (10.3%), Hunan (10.9%), Hubei (5.5%), Henan (0.5%).
• North China: Beijing (0.0%), Tianjin (0.0%), Hebei (5.4%), Shanxi (7.1%), Inner Mongolia (26.6%).
• Northeast China: Heilongjiang (22.3%), Jilin (7.6%), Liaoning (6.7%).
• Southwest China: Chongqing (25.1%), Sichuan (25.1%), Guizhou (25.1%), Yunnan (18.4%), Tibet (11.7%).
• Northwest China: Gansu (14.2%), Shaanxi (21.1%), Qinghai (16.3%), Ningxia (1.0%), Xinjiang (11.7%).

Regional Cement Price Trends

• The report includes images of regional cement price trends for various cities in China, such as Beijing, Tianjin, Shijiazhuang, Taiyuan, Hohhot, Shenyang, Harbin, Changchun, and others.

Analyst Notes

• Investment Thesis: The analyst maintains that the investment thesis for the cement sector remains intact, citing improved supply discipline and strengthened pricing power of large players due to increasing market concentration.
• Market Correction: The sharp market correction has made valuations attractive, particularly for CNBM and Conch Cement.
• Next Issue Date: The China Cement Weekly will resume on March 5, 2018, due to the Chinese New Year holiday.

Disclaimer and Disclosure

• The report is not for distribution in jurisdictions where it would be illegal.
• The report is based on reliable sources but does not guarantee accuracy.
• Galaxy International Securities may have financial interests in the companies discussed.
• The analyst certifies that the views expressed are based on personal analysis and not influenced by compensation.

Equity Ratings Explanation

• BUY: Indicates the share price is expected to increase by more than 20% within 12 months.
• SELL: Indicates the share price is expected to decrease by more than 20% within 12 months.
• HOLD: Indicates no clear catalyst for change, and the rating may be downgraded pending further information.

Conclusion

The cement sector experienced a moderate price decline due to seasonal demand reduction and production suspension. Despite the correction, valuations for major players like CNBM and Conch Cement remain attractive, and the investment thesis remains intact. Investors are advised to monitor the resumption of production after the CNY holiday and consider long-term opportunities in the sector.