20170619-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 a slight decline in national cement prices in May, continuing a moderate downward trend during the low season. The average cement price dropped by 0.87% week-on-week to RMB333.42/tonne, with significant regional variations. Prices in parts of North Anhui, Fujian, Loushao, Hunan, and Hainan saw declines ranging from RMB20 to RMB60 per tonne. The average national cement inventory level rose slightly to 62.38% in mid-June due to traditional low season factors.

Coal prices rebounded by 0.36% week-on-week to RMB564/tonne, with a year-on-year increase of 41%, impacting production costs.

From January to May 2017, national cement output increased by 0.7% YoY to 890 million tonnes, with May output rising by 0.5% YoY. However, the trend of nearly flat prices persisted. Fixed Asset Investment (FAI) growth slowed slightly to 8.6% in May 2017 from 9.3% in April, while property investment growth also declined. Infrastructure investment, however, maintained a high growth rate of 20.9% YoY but saw a monthly decline of 2.4ppt.

The performance of cement stocks was mixed, with an average decline of 2.5%. CNBM [3323.HK] was the best performer, dropping only 0.2%, while CR Cement [1313.HK] was the weakest, falling by 3.7%. The report suggests that the near-term share price performance of the cement sector will be more influenced by supply-side reforms and stricter environmental regulations than by demand-side factors.

Key Financial Metrics

Main Points

• Cement Production and Prices: Cement production remained largely flat in May, with a slight YoY increase of 0.5%. Prices continued to decline in the low season, with an overall average drop of 0.87% week-on-week.
• Coal Prices: Rebounded slightly to RMB564/tonne, up 0.36% week-on-week and 41% YoY, affecting production costs.
• Investment Trends: FAI growth slowed to 8.6% in May 2017, while property investment also showed a moderate decline. Infrastructure investment maintained a strong growth rate of 20.9% YoY, though it declined by 2.4ppt month-on-month.
• Stock Performance: Cement stocks under coverage declined on average by 2.5%. CNBM was the best performer, while CR Cement was the weakest.
• Valuation Metrics: PER and EV/EBITDA ratios varied across companies, with CR Cement showing a significant drop in its PER from 13.6 to 7.4, and BBMG having the highest EV/EBITDA at 15.5 in 2016.

Regional Analysis

Regional Cement Price Variations

• East China: Anhui Conch had the highest share of clinker capacity at 44.9%, followed by CNBM at 40.2% and CR Cement at 10.9%.
• South Central China: Guangdong had the largest share at 26.5%, followed by Guangxi at 25.4% and Hunan at 10.7%.
• North China: Inner Mongolia led with 3.4% of clinker capacity, followed by Hebei at 2.2% and Shanxi at 1.5%.
• Northeast China: Heilongjiang had the highest share at 20.7%, followed by Jilin at 17.2% and Liaoning at 6.5%.
• Southwest China: Sichuan led with 13.1% of clinker capacity, followed by Guizhou at 9.2% and Yunnan at 6.3%.
• Northwest China: Gansu had the highest share at 2.9%, followed by Shaanxi at 5.2% and Qinghai at 0.0%.

Market Share in Terms of Clinker Capacity (2016)

• East China: Anhui Conch had the largest market share at 17.6%, followed by CNBM at 10.3% and CR Cement at 3.5%.
• South Central China: CR Cement had the largest share at 11.8%, followed by Guangdong at 11.2% and Guangxi at 10.7%.
• North China: CNBM led with 6.3%, followed by BBMG at 5.7% and Asia Cement at 2.0%.
• Northeast China: CNBM dominated with 20.7%, followed by BBMG at 11.5% and TCCI at 6.5%.
• Southwest China: CR Cement had the largest share at 11.2%, followed by Sichuan at 7.5% and Guizhou at 5.4%.
• Northwest China: Sinoma Group had the largest share at 7.5%, followed by BBMG at 5.8% and Asia Cement at 2.0%.

Key Insights

• The cement sector is influenced more by supply-side reforms and environmental regulations than by demand-side factors.
• Regional price variations are significant, with some areas experiencing larger declines.
• Investment trends indicate a slowdown in FAI and property investment, but infrastructure remains a strong growth driver.
• Stock performance is mixed, with some companies showing resilience while others face pressure.
• Valuation metrics suggest a range of market perceptions and potential future performance.

Conclusion

The cement sector in China is navigating a challenging low season with moderate price declines and stable production levels. While coal prices have rebounded, the sector's performance is increasingly tied to regulatory and supply-side developments rather than demand-side factors. Regional differences in price and market share highlight the complexity of the sector, and the mixed stock performance underscores the varied outlook for individual companies. Investors are advised to consider the broader market context and potential regulatory changes when evaluating the sector.