20160516-中国银河国际证券-China_Cement_Weekly__Infrastructure_and_Property_Investment_Data_Remained_Upbeat_in_April__Cement_Prices_to_Face_Short-term_Pressure_during_Rainy_Season_12页_1mb

China Cement Weekly Summary - May 16, 2016

Core Content Overview

This report provides an analysis of the cement sector in China, highlighting recent trends in cement prices, production, and market performance, as well as a comparison of key financial metrics and regional market share.

Main Points and Key Information

Cement Price Trends

• National Average Cement Price: The average cement price nationwide dropped slightly by 0.13% week-on-week to RMB252.42/tonne last week.
• Regional Variations:
  • Prices in north Anhui and Zunyi (Guizhou) increased by RMB10-20/tonne.
  • Prices in Nanjing, Hefei (Anhui) and Qiandongnan (Guizhou) declined by RMB10-15/tonne.
• Rainy Season Impact:
  • Heavy rainfall in May is expected to weaken demand in late May and early June, leading to short-term pressure on cement prices.
  • East China inventory levels rose to over 65%, while south central and southwest China exceeded 70%.
• Price Rebound: The previous price rebound had lost steam, with cement prices declining for the first time since March.

Cement Production and Demand

• Production in 2016:
  • Cement production in the first four months of 2016 reached 660 million tonnes, up 3.2% YoY.
  • April production was 220 million tonnes, 13 million tonnes more than March.
• Property Development:
  • Property development remains supportive, with FAI growth at 10.5% YoY in 4M2016.
  • Property development and investment increased by 7.2% YoY, up from Q1 2016.
  • Property sector sources of funds rose by 16.8% YoY, compared to 14.7% in Q1.

Coal Prices

• Coal Price Stability:
  • Coal prices have stabilized over the last two months.
  • The Bohai-Rim Steam Coal (Q5500K) average price index has been at RMB389/tonne since early March.
  • This is 8.0% lower YoY.

Stock Performance and Valuation

Stock Ratings and Price Movements

• Anhui Conch (0914.HK):
  • Rating: BUY
  • Price: HK$18.20
  • Down: 4.0% on average
• CR Cement (1313.HK):
  • Rating: HOLD
  • Price: HK$2.32
  • Down: 0.9%
• BBMG (2009.HK):
  • Rating: BUY
  • Price: HK$4.84
  • Down: 7.3%, partly due to profit-taking.

Valuation Metrics

Peer Comparison

Market Share and Clinker Capacity

Regional Market Share in 2015

• East China:

  • Anhui Conch: 53.0%
  • CNBM: 26.5%
  • Jiangsu: 5.6%
  • Jiangxi: 12.3%
  • Shandong: 35.4%
  • Zhejiang: 56.6%
  • Total: 17.7%

• South Central China:

  • Guangdong: 16.2%
  • Guangxi: 22.0%
  • Hunan: 26.4%
  • Hubei: 0.0%
  • Henan: 0.0%
  • Total: 12.1%

• Southwest China:

  • Guizhou: 9.6%
  • Sichuan: 12.6%
  • Yunnan: 6.6%
  • Total: 20.2%

• Northwest China:

  • Gansu: 3.2%
  • Shaanxi: 5.1%
  • Qinghai: 0.0%
  • Ningxia: 0.0%
  • Xinjiang: 0.4%
  • Total: 8.7%

Clinker Capacity Breakdown

• East China:

  • Anhui Conch: 36.7%
  • CNBM: 0.0%
  • CR Cement: 0.0%
  • BBMG: 0.0%
  • Total: 44.8%

• South Central China:

  • Guangdong: 7.5%
  • Guangxi: 8.2%
  • Hunan: 10.7%
  • Total: 26.4%

• Southwest China:

  • Guizhou: 9.6%
  • Sichuan: 4.4%
  • Total: 20.2%

• Northwest China:

  • Gansu: 3.2%
  • Shaanxi: 5.1%
  • Total: 8.7%

Summary

The China cement sector experienced a slight decline in prices last week, with the national average dropping by 0.13%. This was attributed to the heavy rainfall in May, which is expected to continue into June and July, affecting demand. Despite this, property development and infrastructure investment remained robust, with property investment up 7.2% YoY and infrastructure investment at 19% YoY.

However, cement producers in areas with high inventory levels, such as east China and south central/southwest China, may struggle to raise prices in the coming weeks. The stock market showed weak sentiment, with BBMG being the worst performer, down 7.3%, while Anhui Conch and BBMG were rated BUY, and CR Cement was rated HOLD.

The valuation metrics indicated that the simple average PER was 14.3 in 2015, and the weighted average PER was 13.5 in 2015. The EV/EBITDA ratio was 8.2 in 2015, decreasing to 7.2 in 2016E.

The market share and clinker capacity data showed Anhui Conch dominated the East China market, with Guangxi and Hunan being the key regions in South Central China, and Guizhou and Sichuan in Southwest China.

Overall, the cement sector faces short-term price pressure due to weather conditions, but underlying demand from infrastructure and property remains positive.