20160822-中国银河国际证券-China_Cement_Weekly__Price_Rebound_Momentum_Continuing__More_Post-Summer_Price_Hikes_to_Follow_12页_1mb

China Cement Sector Summary

Core Content

The China cement sector is currently experiencing a price rebound, with cement prices rising for four consecutive weeks. The nationwide average price increased by 0.12% week-on-week to RMB261.92/tonne. In regions such as Jiangsu, Zhejiang, Anhui, and Jiangxi, prices rose by RMB10-30/tonne, while in Sichuan, prices declined slightly by up to RMB10/tonne. Market demand improved slightly as the weather turned better, with daily shipments increasing by approximately 5%. It is expected that more price hikes will follow in areas including Jiangxi, Hubei, Henan, Guangxi, and Guangdong once the market demand recovers from the impact of rainfall and high temperatures.

The average cement inventory level nationwide declined slightly to 70.44%, indicating a tightening market. Coal prices also continued to recover, with the comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) rising RMB12/tonne to RMB464/tonne, marking a 13.2% year-on-year increase.

Main Points

• Cement Price Trends:

  • Prices have risen for four consecutive weeks.
  • Nationwide average price increased by 0.12% week-on-week to RMB261.92/tonne.
  • Regional price increases vary, with some areas seeing RMB10-30/tonne increases and Sichuan experiencing a slight decline.
  • Market demand is expected to improve further, leading to more price hikes in several regions.

• Coal Price Recovery:

  • The comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) increased by RMB12/tonne to RMB464/tonne.
  • Year-on-year increase of 13.2%.

• Anhui Conch and West China Cement:

  • Anhui Conch is unlikely to propose the acquisition of West China Cement in the near term.
  • West China Cement reported a net loss of RMB113.5m for 1H16 due to intense price competition in the Central Shaanxi Plain.
  • Management is confident of returning to profitability in August, with prices already rising RMB40-50/tonne since July due to industry cooperation and production restrictions.

• Stock Performance:

  • Cement stocks under coverage declined on average by 2.0%.
  • CR Cement was the best performer, with a 3.9% increase in share price.
  • BBMG was the weakest, with a 5.4% decline.

Key Information

• Valuation Table:

  • Anhui Conch: Rating BUY, Price HK$20.75, Market Cap US$m13,433, PER (2015: 15.4, 2016E: 11.9, 2017E: 11.7), EV/EBITDA (2015: 8.2, 2016E: 6.5, 2017E: 6.1), Net Debt/Equity: 4%
  • ONBM: Rating HOLD, Price HK$3.67, Market Cap US$m2,540, PER (2015: 26.3, 2016E: 6.7, 2017E: 6.8), EV/EBITDA (2015: 9.9, 2016E: 9.6, 2017E: 9.3), Net Debt/Equity: 218%
  • BBMG: Rating BUY, Price HK$3.00, Market Cap US$m6,296, PER (2015: 14.6, 2016E: 9.9, 2017E: 9.3), EV/EBITDA (2015: 9.7, 2016E: 8.2, 2017E: 7.7), Net Debt/Equity: 63%
  • CR Cement: Rating BUY, Price HK$3.21, Market Cap US$m2,689, PER (2015: 9.2, 2016E: 13.1, 2017E: 10.2), EV/EBITDA (2015: 8.3, 2016E: 7.1, 2017E: 6.5), Net Debt/Equity: 62%

• EPS Growth and PEG:

  • Anhui Conch: EPS Growth 2016E: 36.1%, 2017E: 6.5%, PEG 2016E: 0.6, 2017E: 8.93
  • CNBM: EPS Growth 2016E: 315.0%, 2017E: 2.4%, PEG 2016E: 0.1, 2017E: 1.49
  • BBMG: EPS Growth 2016E: 56.0%, 2017E: 11.1%, PEG 2016E: 0.4, 2017E: 5.41
  • CR Cement: EPS Growth 2016E: -29.2%, 2017E: 28.6%, PEG 2016E: -2.2, 2017E: 7.51

• Peer Comparison:

  • Market Cap and PER (2015, 2016E, 2017E), EV/EBITDA (2015, 2016E), and PBR (2015, 2016E, 2017E) are compared across various cement companies.

• Regional Cement Price and Inventory:

  • Regional cement price variations and inventory levels are highlighted in several figures, showing the dynamics across different parts of China.

Summary

The China cement sector is showing signs of recovery, with cement prices rebounding and expected to continue rising in several regions. Improved weather conditions have slightly boosted market demand, leading to a rise in daily shipments. Coal prices are also recovering, contributing to the overall market dynamics. Anhui Conch is unlikely to propose an acquisition of West China Cement in the near term, but the latter is expected to return to profitability in August. The stock performance of cement companies varies, with CR Cement performing well and BBMG underperforming. Valuation metrics indicate that Anhui Conch and BBMG are rated as BUY, while ONBM is a HOLD. The sector's performance is closely tied to regional demand and production adjustments.