20180111-广发证券_香港_-2018_A-Share_Building_Materials_Outlook_ST_positive_on_cyclicals__growth_stocks_preferred_in_mid_term_11页_748kb

2018 A-Share Building Materials Outlook Summary

Core Content

This report provides an outlook on the Chinese building materials sector for 2018, highlighting both short-term and mid-term investment opportunities. The analysis is based on strong sector fundamentals observed in 2017, including price increases in cement and glass, and robust earnings growth among industry leaders. The report emphasizes the importance of both cyclical and growth stocks in the investment strategy for 2018.

Main Investment Views

1. ST Positive on Cyclicals

• Market Expectations Catching Up: The period from November 2017 to 1Q18 is expected to see market expectations align with the fundamentals of cyclical companies.
• Recommended Companies:
  • Huaxin Cement (600801 CH): Strong fundamentals and expected to benefit from the supply-demand balance.
  • Anhui Conch (600585 CH): Demonstrated strong performance and is likely to offer investment opportunities.
  • Wannianqing Cement (000789 CH): Worth monitoring for potential upside.
• Glass Industry: Upcoming supply-side changes are expected to benefit leading companies such as Kibing Group (601636 CH).

2. Mid-Term Growth Opportunities

• Subsector Leaders: Companies that saw strong share price performance in 2017 are expected to continue their growth if they maintain strong fundamentals and attractive valuations.
• Recommended Companies:
  • Oriental Yuhong (002271 CH)
  • China Jushi (600176 CH)
  • Beijing New Building Materials (000786 CH)
  • Sinoma Science & Technology (002080 CH)

3. Quality Growth Stocks

• Excess Returns Expected: The report is positive on quality growth stocks, which are expected to deliver excess returns in 2018.
• Recommended Companies:
  • Pacific Quartz (603688 CH)
  • Monarch Sanitary Ware (002798 CH)
  • SKSHU Paint (603737 CH)
  • TB New Decoration Material (002043 CH)
  • Shanghai Composite Materials (300196 CH)
  • Triumph Science & Technology (600552 CH)
• Zaisheng Technology (603601 CH) is also highlighted as a potential growth stock.

Sector Fundamentals in 2017

• Cement Prices: Rose by 63% from the beginning of 2016 to December 2017, exceeding expectations.
• Glass Prices: Increased by 35%, also exceeding expectations.
• Earnings Growth: Industry leaders such as Anhui Conch, Kibing Group, Beijing New Building Materials, Oriental Yuhong, and China Jushi reported earnings growth significantly higher than expected in 9M17.

Key Sector Trends

• Supply-Side Policies: Continued strict environmental regulations are expected to maintain a tight supply-demand balance in 2018.
• Industry Consolidation: Rising industry concentration is observed, with leading players gaining strength.
• Property Market: The property market's strength is expected to continue, with a focus on maintaining stable economic growth.
• Fixed Asset Investment: Growth in cumulative fixed asset investment and infrastructure investment peaked in the year following major central government official replacements.

Key Sector Changes to Watch in 2018

• Large Property Companies: Their increasing market share will benefit large building material companies with strong branding and partnerships.
• Advanced Manufacturing: Chinese glass fibre companies have overtaken overseas leaders, and the high-end quartz glass industry is showing strong business conditions.
• CNBM-Sinoma Merger: The merger is expected to create synergy through business integration, internal competition, and improved capital structure.

Risks

• Demand Drop: A significant decline in demand could impact the sector.
• Raw Material Prices: Sharp increases in raw material prices could affect profitability.
• Supply-Side Policy Relaxation: If environmental regulations are relaxed, it could lead to increased supply and lower prices.

Sector and Company Ratings

Sector Ratings

• Positive: Expected to outperform the Hang Seng Index by more than 10%.
• Neutral: Expected relative performance to range between -10% and 10%.
• Cautious: Expected to underperform the Hang Seng Index by more than 10%.

Company Ratings

• Buy: Expected to outperform the benchmark by more than 15%.
• Accumulate: Expected to outperform the benchmark by more than 5% but not more than 15%.
• Hold: Expected relative performance to range between -5% and 5%.
• Underperform: Expected to underperform the benchmark by more than 5%.

Analyst Certification and Disclosure

• The analyst certifies that all views accurately reflect their personal opinions.
• There is a disclosure of interest regarding Sinoma, as GF Securities (Hong Kong) acted as an independent financial adviser and may receive compensation for investment banking services.
• No liability is accepted for losses arising from the use of the report unless excluded by law.

Disclaimer

• The report is for informational purposes only and does not constitute an offer to buy or sell securities.
• It is intended solely for use by GF Securities (Hong Kong) clients.
• The report may be subject to change without notice.
• Investors are advised to seek professional advice before making investment decisions.