20160425-中国银河国际证券-China_Cement_Weekly_12页_1mb

China Cement Sector Summary

Core Content

The China cement sector experienced relatively stable prices in mid-April, with an average price of RMB247.75/tonne. Prices in certain regions such as Shandong, Zhejiang, and Qinghai increased by RMB10-30/tonne, while Fujian and Hunan saw a decline of up to RMB10/tonne. The overall national cement inventory level dropped slightly to 67.8%, and the report anticipates a price increase once the weather improves.

Main Points

• Cement Prices:

  • Stabilized at RMB247.75/tonne since mid-April.
  • Regional price variations: some areas saw increases, others declines.
  • Weather conditions are expected to influence future price trends positively.

• Market Demand:

  • Demand in the northwest and northeast regions showed a recovery, with daily shipment volumes rising by 10%-20% week-on-week.
  • In the east and south central regions, demand was affected by rainfall, leading to a slight decrease.

• Q1 Performance:

  • Several listed cement producers reported net losses in Q1, which the report considers not surprising.
  • TCCI [0743.HK], Tongli Cement [000885.CH], and Qilianshan Cement [600720.CH] all had Q1 net losses.
  • CR Cement [1313.HK; HOLD] reported a recurring net loss of HK$19m after excluding FX gains.

• Economic Recovery:

  • The report suggests that the recovery momentum in March was strong, and it is expected to continue into Q2.
  • Infrastructure projects show improved order activity, with some orders booked up to June.

• Market Volatility:

  • Overheated steel futures trading may increase the volatility of cement stocks.
  • Cement prices are mainly driven by actual demand, not futures.

Key Information

• Cement Stock Performance:

  • Cement stocks under coverage declined on average by 5.8%.
  • CNBM [3323.HK; SELL] was the best performer, declining by 3.9%.
  • BBMG [2009.HK; HOLD] was the weakest, down by 9.0%.

• Valuation Metrics:

  • Peer valuation data includes PER, PBR, and EV/EBITDA for various companies.
  • Anhui Conch (914 HK Equity) has a BUY rating.
  • CNBM (3323 HK Equity) has a SELL rating.
  • BBMG (2009 HK Equity) has a BUY rating.
  • CR Cement (1313 HK Equity) has a HOLD rating.

• EPS Growth and ROE:

  • Anhui Conch shows an EPS growth of 12.6% in 2016E and 6.7% in 2017E.
  • CNBM has a high EPS growth of 129.5% in 2016E and 30.4% in 2017E.
  • CR Cement experienced a negative EPS growth of -34.5% in 2016E and 0.0% in 2017E.
  • BBMG has an EPS growth of 48.2% in 2016E and 9.8% in 2017E.

• Dividend Yield:

  • Anhui Conch has a dividend yield of 2.5% in 2015, 2.2% in 2016E, and 2.2% in 2017E.
  • CNBM has a dividend yield of 1.2% in 2015, 1.2% in 2016E, and 1.5% in 2017E.
  • CR Cement has a dividend yield of 3.2% in 2015, 1.7% in 2016E, and 1.5% in 2017E.
  • BBMG has a dividend yield of 0.7% in 2015, 1.2% in 2016E, and 1.2% in 2017E.

Regional Clinker Capacity and Market Share

• Regional Clinker Capacity Breakdown (2015):

  • East China: Anhui Conch and CNBM have the largest shares.
  • South Central China: Guangdong, Guangxi, and Hunan are the main contributors.
  • North China: Hebei, Shanxi, and Inner Mongolia are the primary regions.
  • Northeast China: Heilongjiang, Jilin, and Liaoning have notable shares.
  • Southwest China: Sichuan, Guizhou, and Yunnan are significant.
  • Northwest China: Gansu, Shaanxi, and Qinghai are key regions.

• Market Share in Terms of Clinker Capacity (2015):

  • East China: Anhui Conch leads with 53.0%, followed by CNBM with 26.5%.
  • South Central China: Guangdong and Hunan have notable shares.
  • North China: Hebei and Inner Mongolia are the main contributors.
  • Northeast China: Jilin and Liaoning have significant shares.
  • Southwest China: Sichuan and Guizhou are key players.
  • Northwest China: Gansu and Shaanxi are major contributors.

Conclusion

The cement sector in China shows signs of recovery, particularly in the northwest and northeast regions, with stable prices and improving demand. However, some companies, such as TCCI, Tongli Cement, and Qilianshan Cement, reported Q1 losses, which are expected due to weak demand in early 2016. The report suggests that the recovery momentum will continue into Q2, driven by infrastructure projects. The volatility in steel futures may affect cement stock prices, but the report views this as a potential buying opportunity. Overall, the cement sector is expected to benefit from improved demand and economic recovery.