20180831-中国银河国际证券-金隅集团-601992.SH-Positive_outlook_for_the_cement_and_property_business_in_2H18__Maintain_BUY_5页_1mb

BBMG Corporation Summary

Core Content

BBMG Corporation (2009.HK; 601992.CH) has shown a positive outlook for its cement and property businesses in the second half of 2018. The company reported a recurring net profit of RMB2.1bn in 1H18, a significant increase of 23.6% YoY. This performance was driven primarily by the property development segment, which contributed RMB1.98bn in pre-tax profit for 1H18, representing 50.5% of total profits. The cement business also improved, with a 36.9% share of total profits and a rise in gross profit per tonne from RMB72 to RMB106 in 1H18.

Key Financial Highlights

• Recurring Net Profit: RMB2.1bn in 1H18, up 23.6% YoY.
• EPS Revisions: 2018E/2019E EPS raised by 12.6% / 14%.
• Target Price: Increased to HK$3.70 (H-share) and RMB4.80 (A-share), with a 50% premium to the H-share target price.
• Revenue Growth: Full-year revenue guidance for 2018E is RMB72.35bn, implying 30% YoY growth.
• Gross Margin: Expected to rise to 30% for the property development segment in 2018E, up from the previous guidance of 27.5%.

Business Performance

Cement Business

• Revenue: RMB34.52bn in 1H18, up 17% YoY.
• Gross Profit per Tonne: Increased to RMB110 in 1H18 from RMB75 in 1H17.
• ASP Increase: The rise in gross profit per tonne is attributed to an increase in average selling price (ASP).
• Sales Volume: Declined by 4.8% YoY to 43.6m tonnes, but the company expects improved performance in 2H18 due to the peak season in northern China.

Property Development Business

• GFA Booked: Rose 6% YoY to 0.431m m² in 1H18, compared to a 29% decline in Q1.
• Pre-Tax Profit: RMB1.98bn in 1H18, up 32.8% YoY.
• Contracted Sales: Declined 34% YoY to 0.518m m² in 1H18, but management expects a recovery in 2H18, aiming for 1.2m m² for the full year.

Financial Metrics

Investment Outlook

• Rating: Maintain BUY.
• Price Target: HK$3.70 (H-share) and RMB4.80 (A-share).
• Share Price Performance: Expected to be less strong than other pure cement plays due to the conglomerate structure.
• Market Cap: US$5,106m as of August 30, 2018.
• Shares Outstanding: 10,677.7m.

Valuation and Strategic Insights

• Sum-of-the-Parts Valuation (SOTP):

  • Cement and other building materials: RMB30,584m (1x PBR)
  • Investment properties: RMB18,553m (40% valuation discount; 7% cap rate)
  • Property development: RMB55,523m (40% valuation discount)
  • JV and associates: RMB2,434m
  • Net debt: (RMB53,762m)
  • Minority interests: (RMB18,945m)
  • Equity value: RMB34,387m

• Cement Demand in Xiongan New Area: Expected to generate 7m to 10m tonnes of annual demand in the first few years of construction.

Operational and Financial Ratios

• Revenue Growth: 17% in 2018E, 6% in 2019E.
• Gross Margin: 26.3% in 2018E, up from 23.0% in 2017.
• Net Profit Margin: 7.0% in 2018E, 6.5% in 2019E.
• EBITDA: Expected to be RMB13.68bn in 2018E, with a 18.9% margin.
• EV/EBITDA: 7.9x in 2018E, 7.7x in 2019E.
• Net Debt/Equity: 82% in 2018E, 86% in 2019E.
• Core ROE: 7.6% in 2018E and 2019E.

Analyst Notes

• Analyst: Wong Chi Man (Head of Research), Mark Lau (Research Analyst).
• Contact: (852) 3698-6317 (Wong), cmwong@chinastock.com.hk (Wong); (852) 3698-6393 (Lau), marklau@chinastock.com.hk (Lau).

Disclaimer and Interests

• The report is issued by Galaxy International Securities and is not intended for distribution in jurisdictions where it would be illegal.
• The company may have financial interests in the subject company, potentially equal to or exceeding 1% of its market cap.
• Analysts may have conflicts of interest due to their roles in investment banking services and potential compensation.

Equity Rating Explanation

• BUY: Share price is expected to increase by >20% in 12 months.
• SELL: Share price is expected to decrease by >20% in 12 months.
• HOLD: No clear catalyst for change, with the possibility of downgrading to SELL or maintaining BUY pending further signals.

Copyright

• No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.