20170123-中国银河国际证券-China_Cement_Weekly_12页_957kb

China Cement Sector Summary

Core Content

The China cement sector experienced a slight increase in national production in 2016, with total output reaching 2.4 billion tonnes, up 2.5% year-on-year (YoY), aligning with market expectations. However, the sector faced challenges in December, where cement production dropped by 1.2% YoY and 6.4% month-on-month (MoM), primarily due to the impact of winter weather on demand. Despite this, infrastructure investment remained robust, rising to RMB11.89 trillion in 2016, a 17.4% YoY increase, with property investment also growing by 6.9% YoY to RMB10.26 trillion.

Market demand, particularly in rural areas, declined significantly as the Chinese New Year approached, with daily shipment volumes at 30%-50% of normal levels. Cement prices also showed a slight downward trend, with the average nationwide price dropping 0.2% week-on-week to RMB315.92/tonne. In Jiangxi, prices fell by RMB10-30/tonne following a recent adjustment. Coal prices, a key input for cement production, decreased slightly to RMB591/tonne, though the YoY increase remained substantial at 58.9%.

Main Points

• National Production: 2.4 billion tonnes in 2016, up 2.5% YoY.
• December Performance:
  • Cement production: -1.2% YoY, -6.4% MoM.
  • FAI (Fixed-Asset Investment): +0.53% MoM.
• Infrastructure Investment: RMB11.89 trillion in 2016, up 17.4% YoY, with growth in water and public facilities investment exceeding 20%.
• Property Investment: RMB10.26 trillion in 2016, up 6.9% YoY, with residential development accounting for 67% of total investment.
• Market Sentiment: Positive, with cement stocks showing average gains of 2.8% last week. Anhui Conch was the best performer, rising 5.9%, while CR Cement, the weakest, still rose 0.3%.
• Valuation Metrics:
  • PER (x): 2016E ranged from 10.2 to 29.2, with a simple average of 17.4 and weighted average of 16.9.
  • EV/EBITDA (x): 2016E ranged from 7.0 to 10.0, with a simple average of 9.3 and weighted average of 9.1.
  • EPS Growth (%): Anhui Conch showed 45.3% in 2016E and 17.6% in 2017E, while ONBM had a sharp 160.4% growth in 2016E and a more modest 34.2% in 2017E.
  • ROE (%): 2015 was 8.93%, with 2016E at 12.01% and 2017E at 12.87% for Anhui Conch.
  • Dividend Yield (%): 2017E varied between 1.5% and 2.8%.

Key Information

• Regional Cement Price Trends: The document includes several figures highlighting regional price variations, indicating that prices in some provinces, such as Jiangxi, were particularly affected by price adjustments.
• Clinker Capacity Distribution: Anhui Conch and CNBM dominate in East China, with Anhui Conch having a 44.9% share. In South Central China, CR Cement and Shanshui hold significant market shares, while in Southwest China, Guizhou and Yunnan show notable presence.
• Market Share by Region: Anhui Conch has a 17.6% market share in East China, and CR Cement holds 10.7% in South Central China. CNBM and BBMG have a strong presence in North China and Northwest China, respectively.
• Investor Notes: Investors are advised not to over-interpret the December demand weakness, as it may be influenced by seasonal factors. The report also includes disclaimers regarding the reliability of information and potential conflicts of interest due to the firm's financial ties with the companies discussed.

Summary Table

Conclusion

The cement sector in China showed resilience in 2016, with national production slightly increasing. Despite a weak December due to seasonal factors and winter weather, overall demand remained strong, supported by infrastructure and property investment growth. Market sentiment was positive, with several cement stocks performing well. Valuation metrics suggest varying levels of investor confidence, with some companies showing strong earnings growth and others more stable. Regional price and capacity data highlight the dominance of certain firms in specific areas, which may influence investment strategies.