20160111-中国银河国际证券-China_Cement_Weekly_12页_1mb

China Cement Sector Summary

Core Content

The document provides an analysis of the Chinese cement sector, focusing on price trends, new clinker capacity additions, inventory levels, and company performance metrics in 2015 and 2016. It also includes market share data by region and company performance comparisons.

Key Information

• Cement Prices:
  Cement prices stabilized last week, with the nationwide average remaining at RMB247.42/tonne. Prices in parts of Jiangsu, Hunan, Anhui, and Jiangxi saw a decline of RMB5–20/tonne, while no major regions saw an increase. Sales volume in southern central and eastern China rose slightly due to improved weather. Prices are expected to continue a gradual downward trend due to fierce competition and high inventory levels.

• Inventory Levels:
  The average national cement inventory level dropped slightly to 75.43% last week.

• New Clinker Capacity Addition in 2015:
  In 2015, new clinker capacity addition totaled 47.12 million tonnes/year, a 32% decline YoY. The majority of new production lines were located in Guangdong, Guizhou, and Guangxi provinces. Twenty-two of the thirty-one new lines had a capacity of 5,000 tonnes/day or more. Anhui Conch was the largest contributor to the new capacity, accounting for 60% of the total. By the end of 2015, the actual national cement production capacity reached 2 billion tonnes/year, up 2% YoY.

• 2016 New Capacity Projection:
  2016 is estimated to see a new clinker capacity addition of around 35 million tonnes, a 26% decline YoY. Most of the new capacity is expected to be added in southwest and south central China.

Main Views

• Supply Side Reform Impact:
  The decline in new capacity addition is attributed to supply side reform, which aims to improve the industry's efficiency and reduce overcapacity. However, the effectiveness of this reform in facilitating industry consolidation remains uncertain due to weak demand growth.

• Market Sentiment and Stock Performance:
  Market sentiment was weak after the new year, as the Hang Seng Index (HSI) fell by 6.7%. Among the covered stocks, Anhui Conch and BBMG were rated as "BUY", while Shanshui Cement was rated as "SELL". CNBM was rated as "HOLD". BBMG showed the weakest performance, dropping 12% in total, while CNBM declined 4.6% to HK$3.55/share.

• Valuation Metrics:
  The valuation table includes PER, PBR, and EV/EBITDA metrics for the listed companies, with Anhui Conch and BBMG showing higher growth potential compared to others. The weighted average of these metrics indicates a range of values across the companies, with varying levels of earnings and price-to-book ratios.

• EPS Growth and ROE:
  EPS growth for 2015E ranged from negative values to positive growth, with BBMG showing a positive growth of 1.3%. The ROE (Return on Equity) for 2014 and 2015E varied, with Anhui Conch and BBMG showing higher returns. The dividend yield for 2014, 2015E, and 2016E also varied across the companies.

Regional Clinker Capacity Breakdown (2015)

• East China:
  Anhui accounted for 44.8% of the total clinker capacity, while Jiangsu and Zhejiang had 1.9% and 1.6%, respectively. The total clinker capacity in East China was 100%.

• South Central China:
  Guangdong and Guangxi were the main contributors, with 7.5% and 8.2% of the total capacity, respectively. The total clinker capacity in South Central China was 100%.

• North China:
  Hebei and Shanxi were the main contributors, with 0.9% and 0.8% of the total capacity, respectively. The total clinker capacity in North China was 100%.

• Southwest China:
  Guizhou and Sichuan were the main contributors, with 9.6% and 4.4% of the total capacity, respectively. The total clinker capacity in Southwest China was 100%.

Market Share in Terms of Clinker Capacity (2015)

• East China:
  Anhui Conch had the largest market share with 53.0%, followed by CNBM with 26.5% in Jiangsu and CR Cement with 16.2% in Guangdong.

• South Central China:
  Shanshui Cement had the largest market share with 22.0% in Guangxi, followed by Anhui Conch with 12.1% in Guangdong.

• North China:
  CNBM had the largest market share in Hebei with 2.8%, followed by CR Cement in Shanxi with 3.7% and Shanshui Cement in Hubei with 3.4%.

• Southwest China:
  Shanshui Cement had the largest market share in Guizhou with 8.8%, followed by BBMG in Sichuan with 10.2% and CR Cement in Yunnan with 9.5%.

Conclusion

The cement sector in China faced challenges in 2015 with a significant drop in new clinker capacity additions and weak market sentiment. The supply side reform played a role in reducing overcapacity, but the effectiveness in consolidating the industry remains uncertain. Prices are expected to continue declining, and inventory levels are still high. Companies like Anhui Conch and BBMG are seen as having potential for growth, while Shanshui Cement is rated as a sell. Regional variations in capacity and market share indicate that the industry is still highly fragmented, with some regions having higher concentrations of production.