20170911-中国银河国际证券-China_Cement_Weekly_12页_951kb

Summary of China Cement Sector Analysis

Core Content

The China cement sector has shown a continued rebound in prices, with the national average cement price increasing by 0.3% week on week to RMB325.21/tonne. Regional price increases were observed in Jiangsu, Shanghai, Yunnan, and Guizhou, with increases ranging from RMB10 to RMB30 per tonne. In contrast, demand in other regions remains weak, at 60%-80% of normal levels, due to environmental inspections and adverse weather conditions such as typhoons and rainstorms. The national average cement inventory level decreased to 64.19%, indicating a tightening market.

Coal prices also saw a slight increase, with the Bohai-Rim Steam Coal (Q5500K) index rising by RMB1/tonne to RMB580/tonne, and a year-on-year increase of 12.6%.

Key Points

Impact of TCCI's Yingde Plant Suspension

• TCCI's Yingde plant temporarily suspended production due to a fire in its main voltage step-down substation on September 10.
• The plant accounts for about 8% of Guangdong's clinker capacity.
• This suspension is expected to benefit CR Cement in the short term, as CR Cement has 30% of its clinker capacity in Guangdong.
• Anhui Conch is also expected to benefit, though to a lesser extent.

Stock Performance

• Cement stocks under coverage increased on average by 1% last week.
• Anhui Conch was the best performer, rising 3%.
• BBMG was the weakest, dropping 2%.

Valuation and Financial Metrics

• Anhui Conch (914 HK Equity): HOLD rating, price of HK$30.30, market cap of US$19,396M, PER of 15.9 (2016), 11.1 (2017E), 10.7 (2018E), PBR of 1.75 (2016), 1.55 (2017E), 1.46 (2018E), EV/EBITDA of 8.5 (2016), 6.5 (2017E), 6.1 (2018E).
• CR Cement (1313 HK Equity): BUY rating, price of HK$4.57, market cap of US$3,828M, PER of 15.2 (2016), 8.7 (2017E), 9.1 (2018E), PBR of 1.10 (2016), 1.08 (2017E), 1.01 (2018E), EV/EBITDA of 8.9 (2016), 6.6 (2017E), 6.8 (2018E).
• BBMG (2009 HK Equity): HOLD rating, price of HK$3.98, market cap of US$9,893M, PER of 16.6 (2016), 14.0 (2017E), 11.4 (2018E), PBR of 0.87 (2016), 0.84 (2017E), 0.83 (2018E), EV/EBITDA of 15.8 (2016), 10.4 (2017E), 9.1 (2018E).
• Simple Average: PER of 18.1 (2016), 11.1 (2017E), 10.1 (2018E); PBR of 10.9 (2016), 8.1 (2017E), 7.6 (2018E); EV/EBITDA of 10.7 (2017E), 7.8 (2018E).
• Weighted Average: PER of 16.9 (2016), 11.6 (2017E), 10.6 (2018E); PBR of 10.5 (2016), 7.5 (2018E); EV/EBITDA of 10.5 (2017E), 7.2 (2018E).

EPS Growth and ROE

• Anhui Conch: EPS growth of 44.4% (2017E), 7.7% (2018E), CAGR of 24.7%, PEG of 0.5, ROE of 11.48% (2017E), 14.85% (2016), 14.31% (2017E), Dividend yield of 2.0% (2016), 3.5% (2017E), 3.3% (2018E).
• CR Cement: EPS growth of 86.8% (2017E), -4.2% (2018E), CAGR of 33.8%, PEG of 0.4, ROE of 7.14% (2017E), 12.89% (2016), 11.48% (2017E), Dividend yield of 2.1% (2016), 5.4% (2017E), 4.8% (2018E).
• BBMG: EPS growth of 23.7% (2017E), 27.4% (2018E), CAGR of 25.5%, PEG of 0.3, ROE of 5.64% (2017E), 6.31% (2016), 7.55% (2017E), Dividend yield of 1.5% (2016), 1.2% (2017E), 1.4% (2018E).

Main Viewpoints

• The cement price rebound suggests a recovery in the sector, particularly in key regions.
• Weak demand in other areas is primarily due to environmental regulations and weather.
• The temporary suspension of TCCI's Yingde plant may provide a competitive advantage to CR Cement and Anhui Conch.
• CR Cement is rated as BUY, indicating positive outlook, while Anhui Conch and BBMG are rated as HOLD.
• Valuation metrics suggest varying levels of investor confidence across different companies.

Key Information

• Clinker Capacity Distribution:

  • In Guangdong, CR Cement holds 29.1% of the clinker capacity.
  • In Guangxi, CR Cement holds 39.1%.
  • In Yunnan, CR Cement holds 6.1%, while TCCI holds 9.5%.
  • In Guizhou, TCCI holds 12.5%.

• Market Share:

  • In East China, Anhui Conch is the market leader in Anhui (53.2%), Zhejiang (49.2%), and Jiangxi (12.2%).
  • In South Central China, CR Cement has a significant market share in Guangdong (19.1%), Guangxi (33.8%), and Hainan (23.3%).
  • In North China, BBMG dominates in Hebei (48.3%) and Shanxi (17.2%).
  • In Northeast China, TCCI is the market leader in Heilongjiang (57.9%) and Jilin (23.5%).
  • In Southwest China, TCCI leads in Sichuan (4.1%) and Guizhou (6.4%).

• Regional Price Trends:

  • Prices in East China and South Central China showed stronger increases.
  • Prices in Northwest China and Northeast China showed more modest changes.

• Inventory Levels:

  • The national average inventory level decreased to 64.19%, suggesting a tighter supply and potential price support.

• Investor Notes:

  • The report is issued by Galaxy International Securities and is subject to disclaimers regarding its use and distribution.
  • The firm may have financial interests in the companies discussed, and analysts are certified to provide their personal views without conflict of interest.