20140311-大和证券-A_top_quality_firm_at_a_bargain_price_12页_514kb

China Resources Cement Holdings (1313 HK) Summary

Core Content

China Resources Cement (CR Cement) is a leading cement producer in South China, owned by China Resources Group. The report highlights its strong performance in 2013 and optimistic outlook for 2014-2016.

Main Points

• Earnings Growth: CR Cement reported a 44% increase in EPS in 2013. The firm is expected to achieve over 50% YoY earnings growth in 2014, with a 30% increase in 2015 and 5% in 2016.
• Price Outlook: Cement prices in South China are expected to rise in 2014 due to favorable demand-supply dynamics, despite being in the low season. The ASP is forecasted to increase by 13% YoY in 2014.
• Balance Sheet: The company's net gearing is expected to decrease from 71% in 2013 to 60% by end-2014 and 51% by end-2015. Operating cash flow is projected to exceed HKD7bn in 2014, more than its capex plan.
• Valuation: The current valuations are considered attractive. The target price for 2014 is HKD8.00, a 21% increase from the previous estimate. The PBR is forecasted to be 1.8x for 2014, up from 1.6x, and the average ROE for 2014-2016 is estimated at 18%, up from 16% previously.
• Dividend Yield: The dividend yield is expected to increase from 3.0% in 2014 to 4.1% in 2016.
• Key Risks: The report identifies potential risks including price wars, weak demand, and CNY depreciation.

Financial Highlights

Revenue (HKDm)

• 2013: 29,341
• 2014E: 34,261 (+16.8% YoY)
• 2015E: 36,743 (+7.2% YoY)
• 2016E: 40,968 (+11.5% YoY)

Net Profit (HKDm)

• 2013: 3,338
• 2014E: 5,050 (+51.3% YoY)
• 2015E: 5,442 (+7.8% YoY)
• 2016E: 5,731 (+5.3% YoY)

Core EPS (Fully-Diluted)

• 2013: 0.511
• 2014E: 0.773 (+51.3% YoY)
• 2015E: 0.833 (+7.8% YoY)
• 2016E: 0.877 (+5.3% YoY)

PER

• 2014E: 6.9
• 2015E: 6.4
• 2016E: 6.1

PBR

• 2014E: 1.2
• 2015E: 1.1
• 2016E: 0.9

ROE (%)

• 2014E: 18.8
• 2015E: 17.6
• 2016E: 16.3

Dividend Yield (%)

• 2014E: 3.0
• 2015E: 3.6
• 2016E: 4.1

DPS (HKD)

• 2014E: 0.162
• 2015E: 0.192
• 2016E: 0.219

Net Debt to Equity (%)

• 2014E: 60.2
• 2015E: 50.9
• 2016E: 46.5

Key Assumptions and Earnings Revisions

• Sales Volume and ASP: Sales volume is expected to grow by 15.9% in 2013, with ASP rising to HKD354/tonne in 2014. Unit gross profit for clinker and cement is forecasted to reach HKD134-136/tonne for 2014-2015.
• SG&A Expenses: Expected to remain around 14.5-14.6% of revenue for 2014-2015, slightly below 2013 levels (14.9%).
• Gross Profit Margin: Expected to increase by 6-7pp to about 35% for 2014-2015.
• Net Profit Margin: Projected to rise to about 15% for 2014-2015, up from 11% in 2013.

Earnings Forecast vs. Consensus

• 2014E: Daiwa forecast is 25.1% above consensus.
• 2015E: Daiwa forecast is 18.3% above consensus.
• 2016E: Daiwa forecast is 1.9% above consensus.

Company Profile

• CR Cement is a state-owned enterprise expanding in Fujian, Shanxi, and Yunnan provinces.
• It is a leading cement producer in South China, with a strong regional presence.

2013 Results Summary

• Revenue: Increased by 15.8% YoY to HKD29,341m.
• Gross Profit: Rose by 37.1% YoY to HKD8,360m.
• Operating Profit: Grew by 27.4% YoY to HKD4,209m.
• Net Profit: Increased by 43.6% YoY to HKD3,338m.
• EPS: Rose by 43.6% YoY to HKD0.512.
• Gross Profit Margin: Improved to 28.5% from 24.1% in 2012.
• Operating Profit Margin: Increased by 1.3pp to 14.3%.
• Net Profit Margin: Improved to 11.4% from 9.2% in 2012.
• Net Debt: Reduced by 5.5% YoY to HKD17.6bn.
• Net Debt to Equity: Fell by 16.2pp to 71.0%.

Conclusion

CR Cement is viewed as a top quality firm with a strong earnings outlook, improved balance sheet, and attractive valuations. The report reiterates a "Buy" rating and suggests that the company is a strong investment due to its favorable position in the South China cement market.