20160222-中国银河国际证券-China_Cement_Weekly_12页_1mb

China Cement Sector Summary

Core Content

The document provides an analysis of the Chinese cement sector, focusing on recent price trends, stock performance, and valuation metrics. It highlights the impact of the Chinese New Year (CNY) holiday on market activity, the influence of monetary policy on stock valuations, and the expected performance of cement companies in the coming months.

Key Market Trends

• Cement Prices:

  • Cement prices dropped slightly after CNY, with an average decline of $0.38%$ week-on-week to RMB240.08/tonne.
  • Prices in Anhui, Guangdong, Guangxi, and Guizhou fell by RMB10-30/tonne.
  • Bulk cement prices remained stable due to low demand during the project suspension period.
  • Regional price variations are illustrated in Figure 1, with some areas showing stronger performance than others.

• Market Demand:

  • The first week post-CNY saw low trading volume in northern and western China.
  • Eastern, central, and southern regions have already recovered by $10%$ to $40%$.
  • Market demand is expected to rebound significantly only after the Lantern Festival.

• Inventory Levels:

  • National cement inventory levels rose slightly to $74.57%$ after CNY.

Stock Performance

• Overall Sector Performance:

  • Cement stocks under coverage increased by $17.7%$ based on a simple average.
  • The sector outperformed the Hang Seng Index (HSI), which rose $5.3%$ last week.

• Individual Stock Performance:

  • Anhui Conch [914.HK; HOLD]: Rose $19.5%$ to HK$6.92/share.
  • BBMG [2009.HK; BUY]: Increased $15.6%$, and is the only BUY recommendation due to its resilient property business and potential demand growth from the Beijing-Tianjin-Hebei Integration Project.
  • Other companies like CNBM [3323.HK; SELL] and Shanshui Cement [691.HK; SELL] showed mixed performance.

Valuation Analysis

EPS Growth and ROE

Key Viewpoints

• The short-term rebound in cement stocks is attributed to low price-to-book (PBR) ratios and positive monetary data, but may not be sustainable.
• The document warns that most cement companies are expected to report poor results in 1H2016 due to the high base effect from 1H15.
• Investors are advised to take profits before mid-March, when cement companies will release 2015 results and provide 1H2016 outlooks.
• BBMG is the only BUY call in the sector, due to its strong property business and potential for increased cement demand in 2H2016.

Conclusion

The cement sector in China experienced a slight price drop after the Chinese New Year, with some regions recovering faster than others. While there was a short-term rebound in stock prices, driven by low valuations and monetary policy expectations, the sustainability of this trend is uncertain. The document emphasizes the importance of monitoring future results and market conditions, particularly the performance of BBMG, which is viewed as a potential outperformer due to its resilience and growth prospects.