20180717-中国银河国际证券-金隅集团-601992.SH-1H18_Positive_Profit_Alert_Should_Help_Turn_the_Overly_Bearish_Sentiment_4页_909kb

BBMG Corporation Summary

Core Content

BBMG Corporation (2009.HK; 601992.CH) has announced a significant increase in its first-half 2018 (1H18) net profit, which is expected to rise by 30%–41% year-over-year (YoY). Despite this positive development, the company's share price has dropped by 26% year-to-date (YTD), underperforming other major cement companies due to a net loss in Q1 2018. The report suggests that this loss was a temporary issue, and the positive profit alert should help restore investor confidence.

Main Points

• Profit Alert: BBMG's 1H18 net profit is forecasted to be RMB2.4bn–RMB2.6bn, indicating strong recovery from Q1's losses. The Q1 loss was attributed to limited revenue booking in the property development business and seasonal factors affecting cement sales.
• Recurring Profit Forecast: The company is expected to meet its full-year recurring profit forecast of RMB3.66bn, assuming no exceptional non-cash gains in the property revaluation.
• Q2 Performance: There was a notable improvement in Q2 performance compared to Q1. GFA booked for the property development business was largely flat YoY, while cement sales volume increased by 6.24%.
• Valuation Concerns: The current valuation of 6.4x 2018E PER and 0.43x PBR is considered overly bearish. The report suggests that the share price weakness was driven by Q1 results and sector-wide selling pressure.
• Target Price Adjustments: The SOTP-based target price for BBMG (H-share) has been lowered from HK$4.68 to HK$3.55, and for BBMG-A (A-share) from RMB5.66 to RMB4.55, primarily due to a higher discount applied to the property business after the sector correction.
• Refinancing Outlook: As a key state-owned enterprise (SOE) under the Beijing municipal government, BBMG is expected to have no significant refinancing issues despite the tightening credit environment in China.

Key Financials

Investment Highlights

• The Q1 net loss was due to limited revenue booking in the property development business and a decline in cement sales volume.
• Q2 performance shows a significant improvement, with GFA booked for the property development business remaining flat YoY and cement sales volume increasing.
• The company's valuation is considered very low, with a PBR of 0.43x and a PER of 6.4x, both below historical averages.
• The 1H18 profit alert is expected to alleviate concerns about missing revenue targets.
• The report maintains a BUY rating, with revised target prices based on updated assumptions.

Market Overview

• Close Price: HK$2.62 (Jul 16, 2018)
• Target Price (H): HK$3.55 (35.4% upside)
• Target Price (A): RMB4.55 (39.2% upside)
• Market Cap: US$4,856m
• Shares Outstanding: 10,677.7m
• Free Float: 48.26%
• 52-Week Range: HK$2.58–HK$4.43
• 3-Month Average Daily Turnover: US$9.1m
• Major Shareholder: BBMG Group (44.93%)

Key Financial Indicators

• Recurring Net Profit: Expected to reach RMB3.66bn for the full year 2018.
• Cement and Clinker ASP: Expected to increase to RMB274/tonne in 2018.
• Cement Sales Volume: Expected to be 103,403,000 tonnes in 2018.
• GFA Booked: Expected to be 1,050,000 sq.m in 2018.

Valuation Summary

Analyst Notes

• Analyst: Wong Chi Man (Head of Research), Mark Lau (Research Analyst)
• Contact: (852) 3698-6317, cmwong@chinastock.com.hk; (852) 3698-6393, marklau@chinastock.com.hk

Disclaimer

• This report is issued by China Galaxy International Securities (Hong Kong) Co., Limited.
• No representation or warranty is made regarding the accuracy or completeness of the information.
• The report is not an offer or solicitation to buy or sell any securities.
• Past performance is not indicative of future performance.

Copyright

• No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.