20180525-中国银河国际证券-华润水泥控股-01313.HK-Cement_Prices_Remain_Resilient__GBA_Development_the_Next_Focus_5页_811kb

China Resources Cement [1313.HK] Summary

Core Content

China Resources Cement (CR Cement) is a leading cement producer in China, with a focus on the Guangdong and Guangxi provinces. The report highlights the company's strong performance and outlook for the coming years, emphasizing its resilience in cement prices and potential growth driven by the development plan of the Greater Bay Area (GBA).

Main Points

• Cement Prices Remain Resilient: Cement prices in Guangdong and Guangxi have remained firm since the beginning of 2018, according to data from Digital Cement. This resilience is attributed to low inventory levels and strong regional demand.

• Revised ASP Assumptions: The blended average selling price (ASP) for cement and clinker is revised upward from HK$368/HK$368 to HK$379/HK$380 for 2018E and 2019E, reflecting the strong demand and pricing power in the region.

• Earnings Forecast Increase: The recurring EPS for CR Cement is raised by 12.4% for 2018E and 12% for 2019E, driven by the revised ASP assumptions and strong production growth in the region.

• Target Price Adjustment: The target price is lifted from HK$8.93 to HK$10.40, corresponding to a PBR of 1.95x and a PER of 9x for 2018E.

• GBA Development Plan: The upcoming development plan for the GBA is expected to boost infrastructure and property investment, which will likely increase cement demand in the region. This is anticipated to drive continued outperformance of cement production in Guangdong and Guangxi compared to the national average.

• Strong Regional Production Growth: In the first four months of 2018, cement production in Guangdong and Guangxi grew by 7.8% and 11.6% YoY, respectively, significantly outperforming the national decline of 1.9%.

• Positive Financial Outlook: The company is projected to see substantial revenue and EBITDA growth in 2018E and 2019E, with a 28% and 0% change in revenue, respectively, and a 111% and 106% increase in EBIT and EBITDA.

• Improved Margins: The gross margin has improved from 24% in 2015 to 38.5% in 2019E, while net margin has also increased from 7.4% to 19.5%.

• Strong Cash Flow and Liquidity: The company has shown consistent cash flow generation, with net operating cash flow increasing from HK$4.83 million in 2015 to HK$10.98 million in 2018E. The current ratio and quick ratio have improved, indicating better liquidity.

• Investment Recommendation: The report reiterates a BUY rating, indicating a strong positive outlook for the company's share price, which is expected to increase by more than 20% over the next 12 months.

Key Financials

Income Statement (HK$'000)

Balance Sheet (HK$'000)

Financial Ratios

Key Growth Rates

Key Observations

• The company's performance in Guangdong and Guangxi is significantly better than the national average, showing strong regional demand.
• The development plan for the GBA is expected to drive further infrastructure and property investment, which will likely support cement demand.
• The company has demonstrated strong earnings growth, particularly in 2017 and 2018E, with improved margins and profitability.
• The improved financial ratios, including the current ratio and quick ratio, indicate better liquidity and financial health.
• The analyst's BUY rating is based on the expectation of a more than 20% increase in share price over the next 12 months.

Conclusion

China Resources Cement is positioned to benefit from the strong regional demand in Guangdong and Guangxi, supported by the upcoming GBA development plan. The company has shown significant improvements in its financial performance, with increased revenue, EBITDA, and net income, and improved financial ratios. The analyst maintains a BUY rating and has raised the target price to HK$10.40, reflecting confidence in the company's future prospects.