China Cement Sector Summary
Core Content
The China cement sector is experiencing a mix of market dynamics, including price stabilization, regional integration, and performance of key players. The sector is influenced by factors such as market demand, coal prices, and financial performance of major companies.
Market Trends
- Cement Prices: Cement prices showed a slight decline last week, with the nationwide average dropping by 0.6% week-on-week to RMB316.58/tonne. Prices in parts of Jiangxi and Yunnan fell by RMB20-30/tonne.
- Market Demand: As the Chinese New Year approached, market demand dropped 5%-10% week-on-week. However, South China saw better shipment volumes than the previous year, with daily shipment reaching 80% in most areas.
- Inventory Levels: The average inventory level nationwide declined slightly to 59.88%.
Coal Price Trends
- Coal Prices: The Bohai-Rim Steam Coal (Q5500K) index continued to drop slightly, by RMB1/tonne, to RMB592/tonne. Despite the decline, it remained 59.6% higher than the same period in the previous year.
Regional Integration and Turnaround
- BBMG & Jidong Cement: These companies are highlighted as successful examples of turnaround through regional integration in the Beijing-Tianjin-Hebei area.
- Profit Growth: Both BBMG and Jidong Cement reported a 20%-45% YoY increase in net profit, turning around from a net loss of RMB1.7bn in 2015 to a net profit of RMB20m-80m in 2016.
- Gross Profit Margin: Both companies saw an increase in gross profit margin for cement and clinker sales.
- Financial Integration: BBMG completed the subscription of new registered capital and acquired 10% equity interest in Jidong Development Group, gaining indirect control over Tangshan Jidong Cement Co., Ltd. It included the operating results of Jidong Development Group from October 1, 2016 to December 31, 2016 in its preliminary results.
Stock Performance
- Cement Stocks: The average price of cement stocks under coverage increased by 3.2% last week.
- Best Performer: Anhui Conch was the best performer, rising by 5.4%.
- Weakest Performer: BBMG was the weakest, rising by 0.4%.
- Ratings: BBMG and Anhui Conch are rated BUY, while CNBM is rated HOLD.
Valuation Table
| Company |
Ticker |
Rating |
Price (HK$) |
Market Cap (US$m) |
PER (x) |
EV/EBITDA (x) |
Net Debt/Equity (%) |
| Anhui Conch |
914 HK Equity |
BUY |
22.90 |
14,116 |
15.2, 11.0, 9.9 |
8.1, 6.1, 5.4 |
(7) |
| CNBM |
3323 HK Equity |
HOLD |
4.00 |
2,769 |
27.3, 11.0, 8.6 |
10.0, 10.0, 9.5 |
210 |
| BBMG |
2009 HK Equity |
BUY |
2.77 |
5,926 |
12.6, 8.6, 7.5 |
9.2, 9.1, 7.9 |
54 |
| CR Cement |
1313 HK Equity |
BUY |
3.20 |
2,680 |
9.6, 11.8, 8.8 |
8.4, 6.8, 5.9 |
67 |
Peer Comparison
| Company |
Ticker |
Rating |
Price (LC) |
Market Cap (US$m) |
PER (x) |
PBR (x) |
EV/EBITDA (x) |
| Anhui Conch |
914 HK Equity |
BUY |
22.90 |
14,116 |
15.2, 11.0, 9.9 |
1.32, 1.27, 1.21 |
8.1, 6.1, 5.4 |
| CNBM |
3323 HK Equity |
HOLD |
4 |
2,769 |
27.3, 11.0, 8.6 |
0.40, 0.41, 0.41 |
10.0, 10.0, 9.5 |
| BBMG |
2009 HK Equity |
BUY |
2.77 |
5,926 |
12.6, 8.6, 7.5 |
0.62, 0.61, 0.58 |
9.2, 9.1, 7.9 |
| CR Cement |
1313 HK Equity |
BUY |
3.20 |
2,680 |
9.6, 11.8, 8.8 |
0.74, 0.71, 0.67 |
8.4, 6.8, 5.9 |
Regional Clinker Capacity Breakdown (2016)
| Region |
Anhui Conch |
CNBM |
CR Cement |
Shanshui |
BBMG |
TCCI |
Asia Cement |
WCC |
Huaxin-Lafarge |
Sinoma Group |
| East China |
44.9% |
40.2% |
10.9% |
51.7% |
2.2% |
8.7% |
42.0% |
5.1% |
10.1% |
13.9% |
| South Central China |
26.5% |
15.4% |
73.3% |
2.6% |
5.1% |
48.9% |
32.9% |
5.1% |
46.1% |
68.8% |
| North China |
17.6% |
23.8% |
1.4% |
10.7% |
0.4% |
0.8% |
1.8% |
2.5% |
1.9% |
1.5% |
| Northeast China |
11.8% |
10.3% |
10.7% |
0.4% |
0.7% |
5.0% |
1.2% |
3.5% |
8.5% |
2.5% |
| Southwest China |
7.5% |
15.9% |
3.5% |
3.2% |
5.4% |
2.5% |
1.1% |
4.8% |
4.8% |
4.8% |
| Northwest China |
7.5% |
5.8% |
2.5% |
0.7% |
28.0% |
68.8% |
2.0% |
0.3% |
28.0% |
28.0% |
| Grand Total |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
Market Share in Terms of Clinker Capacity (2016)
| Region |
Anhui Conch |
CNBM |
CR Cement |
Shanshui |
BBMG |
TCCI |
Asia Cement |
WCC |
Huaxin-Lafarge |
Sinoma Group |
| East China |
17.6% |
100.0% |
23.8% |
6.2% |
0.4% |
0.8% |
1.2% |
0.0% |
8.0% |
2.5% |
| South Central China |
11.8% |
10.3% |
10.7% |
0.4% |
0.7% |
5.0% |
1.1% |
3.5% |
8.5% |
4.8% |
| North China |
0.0% |
6.3% |
1.9% |
5.7% |
29.3% |
0.0% |
2.0% |
8.4% |
8.4% |
28.0% |
| Northeast China |
0.0% |
20.7% |
0.0% |
11.5% |
6.5% |
1.5% |
0.0% |
0.0% |
8.5% |
0.0% |
| Southwest China |
11.2% |
26.7% |
3.5% |
3.2% |
1.4% |
5.0% |
2.0% |
0.3% |
3.5% |
4.8% |
| Northwest China |
7.5% |
5.8% |
2.5% |
0.7% |
5.8% |
0.0% |
8.4% |
0.0% |
28.0% |
28.0% |
| Grand Total |
10.5% |
15.9% |
3.5% |
3.2% |
5.4% |
2.5% |
1.1% |
1.1% |
3.5% |
4.8% |
Key Insights
- BBMG and Jidong Cement have demonstrated significant profit improvement through regional integration.
- Anhui Conch and CR Cement are preferred over BBMG due to lower exposure to the property business.
- Cement prices are stabilizing before the Chinese New Year, with South China showing relatively stable demand.
- Coal prices are continuing to decline, which may have a positive impact on cement production costs.
- Valuation metrics show divergence in performance and growth expectations among cement companies.
Disclaimer
- This report is not directed at or intended for distribution to any person or entity in jurisdictions where it would be illegal.
- The information is believed to be reliable but no guarantees are made regarding its accuracy.
- Investment decisions should be made with care, and consulting financial advisors is recommended.
- Opinions and estimates are subject to change and disclaimer of liability is provided for any inaccuracy or incompleteness.
