20181126-中国银河国际证券-China_Cement_Weekly_12页_1mb

China Cement Weekly Summary - November 26, 2018

Core Content Overview

This report provides an analysis of the China cement sector, focusing on price trends, reorganization impacts, and valuation metrics for key cement companies. It highlights the regional performance of cement prices, the implications of corporate restructuring, and the financial performance of listed cement stocks.

Cement Price Trends

• National Average Cement Price: Increased by 0.8% to RMB446/tonne from the previous week.
• Regional Price Movements:
  • Increased: Hebei, Jiangsu, Zhejiang, Shanghai, and Anhui.
  • Decreased: Changde (Hunan), Yiyang (Hunan), and Lanzhou (Gansu) by RMB10-20/tonne.
• Seasonal Demand: Late November saw largely stable cement demand, with a seasonal decline in the north and northwest regions.
• Price Drivers: The price increase is attributed to environmental protection restrictions, leading to tighter supply.
• Short-Term Outlook: Cement prices are expected to remain stable rather than increase substantially.

Reorganization Impact on Conch Cement

• Parent Company Reorganization: The reorganization of Anhui Conch Group and Anhui International Trade Group is expected to be completed by the end of 2018.
• Business Overlap: There is no significant overlap in business between the two companies.
• Anhui Conch Group: Focuses on building materials and has total assets of RMB125bn.
• Anhui International Trade Group: Engaged in international and domestic trading of food, apparel, and property development, with total assets of RMB35bn.
• Conclusion: The reorganization is unlikely to have a significant impact on Conch Cement's operations in the near term.

Stock Performance and Valuation

• Cement Stocks: On average, cement stocks under coverage decreased by 0.63% last week.
• Best Performer: BBMG (2009.HK) rose by 3.32%.
• Weakest Performer: Conch Cement (0914.HK) fell by 2.84%.
• Valuation Table:
  • Conch Cement (0914.HK):
    • Rating: BUY
    • Price: HK$39.30
    • Market Cap: US$24,635m
    • PER (2017): 12.2
    • PER (2018E): 6.2
    • PER (2019E): 5.8
    • EV/EBITDA (2018E): 7.1
    • Net Debt/Equity: Net cash
  • CNBM (3323.HK):
    • Rating: BUY
    • Price: HK$5.86
    • Market Cap: US$6,337m
    • PER (2017): 7.8
    • PER (2018E): 4.2
    • PER (2019E): 4.1
    • EV/EBITDA (2018E): 10.8
    • Net Debt/Equity: 123%
  • BBMG (2009.HK):
    • Rating: BUY
    • Price: HK$2.49
    • Market Cap: US$4,989m
    • PER (2017): 7.9
    • PER (2018E): 5.7
    • PER (2019E): 5.2
    • EV/EBITDA (2018E): 10.4
    • Net Debt/Equity: 82%
  • CR Cement (1313.HK):
    • Rating: BUY
    • Price: HK$7.09
    • Market Cap: US$6,347m
    • PER (2017): 13.0
    • PER (2018E): 5.9
    • PER (2019E): 5.7
    • EV/EBITDA (2018E): 8.5
    • Net Debt/Equity: 3.0%
  • Simple Average:
    • PER (2017): 10.2
    • PER (2018E): 5.5
    • PER (2019E): 5.2
    • EV/EBITDA (2018E): 9.2
    • Net Debt/Equity: 5.5%
  • Weighted Average:
    • PER (2017): 11.2
    • PER (2018E): 5.8
    • PER (2019E): 5.4
    • EV/EBITDA (2018E): 8.3
    • Net Debt/Equity: 4.7%

Peer Comparison

• Market Cap:
  • Conch Cement: US$24,635m
  • CNBM: US$6,337m
  • BBMG: US$4,989m
  • CR Cement: US$6,347m
• PER (2017):
  • Conch Cement: 12.2
  • CNBM: 7.8
  • BBMG: 7.9
  • CR Cement: 13.0
• PER (2018E):
  • Conch Cement: 6.2
  • CNBM: 4.2
  • BBMG: 5.7
  • CR Cement: 5.9
• EV/EBITDA (2018E):
  • Conch Cement: 7.1
  • CNBM: 10.8
  • BBMG: 10.4
  • CR Cement: 8.5

Regional Clinker Capacity Breakdown (2017)

• East China:
  • Anhui: 38.4%
  • Jiangsu: 1.8%
  • Jiangxi: 3.7%
  • Shandong: 0.8%
  • Zhejiang: 1.5%
  • Shanghai: 0.0%
  • Total: 46.25%
• South Central China:
  • Guangdong: 7.3%
  • Guangxi: 7.9%
  • Hainan: 0.0%
  • Hunan: 10.4%
  • Hubei: 0.0%
  • Henan: 0.0%
  • Total: 25.7%
• North China:
  • Hebei: 0.0%
  • Shanxi: 0.4%
  • Inner Mongolia: 3.9%
  • Total: 5.4%
• Northeast China:
  • Heilongjiang: 3.1%
  • Jilin: 1.7%
  • Liaoning: 0.7%
  • Total: 5.9%
• Southwest China:
  • Chongqing: 20.0%
  • Sichuan: 4.2%
  • Guizhou: 9.0%
  • Yunnan: 3.8%
  • Tibet: 0.0%
  • Total: 15.3%
• Northwest China:
  • Gansu: 2.8%
  • Shaanxi: 4.9%
  • Qinghai: 0.0%
  • Ningxia: 2.2%
  • Xinjiang: 0.4%
  • Total: 15.3%
• Grand Total: 100.0%

Market Share in Terms of Clinker Capacity (2017)

• East China:
  • Anhui Conch: 18.9%
  • CNBM: 26.8%
  • CR Cement: 1.4%
  • Shanshui: 5.2%
  • BBMG: 0.5%
  • Asia Cement: 1.8%
  • WCC: 0.0%
  • Huaxin-Lafarge: 0.0%
• South Central China:
  • Anhui Conch: 11.6%
  • CNBM: 12.9%
  • CR Cement: 10.9%
  • Shanshui: 0.3%
  • BBMG: 0.7%
  • Asia Cement: 1.2%
  • WCC: 0.0%
  • Huaxin-Lafarge: 7.8%
• North China:
  • Anhui Conch: 0.0%
  • CNBM: 8.7%
  • CR Cement: 2.0%
  • Shanshui: 5.9%
  • BBMG: 30.7%
  • Asia Cement: 0.0%
  • WCC: 0.0%
  • Huaxin-Lafarge: 0.0%
• Northeast China:
  • Anhui Conch: 0.0%
  • CNBM: 22.3%
  • CR Cement: 0.0%
  • Shanshui: 9.4%
  • BBMG: 6.7%
  • Asia Cement: 0.0%
  • WCC: 0.0%
  • Huaxin-Lafarge: 0.0%
• Southwest China:
  • Anhui Conch: 11.7%
  • CNBM: 25.1%
  • CR Cement: 1.6%
  • Shanshui: 0.0%
  • BBMG: 1.5%
  • Asia Cement: 2.0%
  • WCC: 0.3%
  • Huaxin-Lafarge: 4.8%
• Northwest China:
  • Anhui Conch: 7.5%
  • CNBM: 26.6%
  • CR Cement: 0.0%
  • Shanshui: 0.7%
  • BBMG: 6.0%
  • Asia Cement: 0.0%
  • WCC: 8.2%
  • Huaxin-Lafarge: 0.0%
• Grand Total:
  • Anhui Conch: 11.0%
  • CNBM: 20.5%
  • CR Cement: 3.6%
  • Shanshui: 2.8%
  • BBMG: 5.5%
  • Asia Cement: 1.2%
  • WCC: 1.0%
  • Huaxin-Lafarge: 2.8%

Equity Ratings Explanation

• BUY: Indicates that the share price is expected to increase by >20% within 12 months.
• SELL: Indicates that the share price is expected to decrease by >20% within 12 months.
• HOLD: Indicates no clear catalyst, and the rating may be downgraded from BUY pending clearer signals.

Disclaimer and Disclosure

• The report is issued by China Galaxy International Securities (Hong Kong) Co., Limited and is not directed to any person or entity in jurisdictions where it would be illegal.
• China Galaxy Securities Co., Ltd. is the holding company of the group.
• The firm may have financial interests in the companies covered.
• Analysts may have conflicts of interest and have not traded the securities in the 30 days prior to the report's release.
• The report is for institutional clients and is based on reliable information sources.

Conclusion

The report outlines the current state of the cement market, including price trends, reorganization impacts, and stock performance, emphasizing that the reorganization of Conch Cement's parent company is unlikely to significantly affect its operations. It also provides a comprehensive valuation table and peer comparison to assist in investment decision-making.