Cement Production: In 2015, China's cement production decreased by 4.9% YoY to 2.35 billion tonnes, marking the first full-year decline since 1990. December 2015 production was 198 million tonnes, down 3.7% YoY and 3.4% MoM.
Market Demand: Cement demand has been weak since September 2014, driven by a slowdown in fixed asset investment (up 10% in 2015) and real estate investment (up 1% in 2015). New housing starts continued to decline. However, infrastructure development (road transportation, water conservancy, and public facilities management) saw growth of 16.7%, 21%, and 20.2% respectively in 2015.
Price Trends: Cement prices dropped 0.82% nationwide last week, with declines in parts of Jiangsu, Zhejiang, Hubei, and Jiangxi ranging from RMB10 to RMB30 per tonne. The decline was attributed to rainy and snowy weather and the suspension of construction activities before the Spring Festival.
Inventory Levels: The average national cement inventory level increased slightly to 75.85% last week, indicating a potential oversupply in the market.
Market Sentiment: Market sentiment fluctuated as the Hang Seng Index (HSI) surged 2.9% after a sharp decline. BBMG was the best performer, rising 6.8%, while CR Cement was the weakest, falling 3.0%.
Key Financial Metrics
Company
Ticker
Rating
Price (HK$)
Market Cap (US$m)
PER (x) - 2014
PER (x) - 2015E
PER (x) - 2016E
PBR (x) - 2014
PBR (x) - 2015E
PBR (x) - 2016E
EV/EBITDA (x) - 2014
EV/EBITDA (x) - 2015E
EV/EBITDA (x) - 2016E
Net Debt/Equity (%) - 2015E
Anhui Conch
914 HK Equity
BUY
16.52
11,487
6.3
11.3
11.1
1.10
1.03
0.97
4.3
6.1
5.6
9
CNBM
3323 HK Equity
HOLD
3.16
2,187
2.5
8.5
4.3
0.35
0.34
0.32
7.2
9.3
8.5
249
BBMG
2009 HK Equity
BUY
4.41
5,835
8.6
8.9
6.2
0.53
0.53
0.50
7.9
8.0
6.4
65
CR Cement
1313 HK Equity
HOLD
1.96
1,642
3.0
6.4
10.0
0.45
0.49
0.48
3.9
6.7
6.6
56
Shanshui Cement
691 HK Equity
SELL
6.29
2,725
45.9
42.2
34.7
1.58
1.52
1.47
10.6
10.3
9.4
134
Simple and Weighted Averages
Simple Average: PER 13.2, PBR 6.8, EV/EBITDA 7.3, Net Debt/Equity 103%
Weighted Average: PER 10.8, PBR 0.87, EV/EBITDA 6.1, Net Debt/Equity 62%
Weighted Average: PER 9.9, PBR 0.87, EV/EBITDA 6.1
Regional Cement Price Breakdown
East China: Anhui Conch dominates with 44.8% of total clinker capacity.
South Central China: Guangdong and Guangxi have the largest exposure with 7.5% and 8.2% respectively.
North China: Hebei and Shanxi are the main contributors, with 5.0% and 7.7% of total clinker capacity.
Northeast China: Liaoning has the highest exposure with 10.3%.
Southwest China: Sichuan and Guizhou are the major contributors, with 12.6% and 8.8% respectively.
Northwest China: Shaanxi and Qinghai are the primary regions, with 5.1% and 0.0% respectively.
Market Share in Terms of Clinker Capacity (2015)
Region
Anhui Conch
CNBM
CR Cement
Shanshui
BBMG
TCCI
Asia Cement
WCC
Sinoma Group
Jidong
Huaxin
East China
53.0%
11.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
6.3%
0.0%
0.0%
South Central China
16.2%
0.0%
16.2%
0.0%
0.0%
13.3%
0.0%
0.0%
3.4%
0.0%
1.7%
North China
0.0%
5.0%
23.1%
92.9%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Northeast China
0.0%
7.1%
19.9%
2.4%
3.4%
0.0%
0.0%
0.0%
8.5%
0.0%
0.0%
Southwest China
20.2%
31.3%
9.0%
0.0%
0.0%
94.5%
60.4%
18.5%
0.0%
0.0%
0.0%
Northwest China
8.7%
0.0%
2.6%
0.0%
0.0%
94.5%
60.4%
18.5%
0.0%
0.0%
0.0%
Key Observations
Cement production and demand have been declining due to weak construction activity and a slowdown in fixed asset and real estate investment.
Infrastructure development remains a key driver of growth in the cement sector.
Market sentiment is fluctuating, with BBMG performing well and CR Cement underperforming.
Regional exposure varies significantly among companies, with Anhui Conch and Shanshui Cement having major shares in East and Southwest China respectively.
Valuation metrics indicate that some companies are undervalued, while others show potential for upside.