china cement weekly 20171127 cgihkpg.jrj.com.cn/acc/res/cn_res/indus/2017/11/27/26c... · 1 china...

1

China Cement Weekly November 27, 2017

Wong Chi Man—Head of Research

(852) 3698-6317

[email protected]

Cement Prices Remained Strong Last Week; CNBM/SINOMA Merger Entered the Final Stage

National cement prices remained strong last week. The average cement price (nationwide) increased 2.4% week on week to RMB366/tonne last week. Cement prices in some parts of Hebei, Shanxi, Shanghai, Jiangsu, Anhui, Henan, Shandong, Chongqing and Gansu went up by RMB20-70/tonne. The tight supply of cement and clinker continued to drive prices higher. In certain regions of Henan, Shandong and northern Jiangsu, cement prices exceeded RMB500/tonne. The average inventory level (nationwide) was down further to 54.44%.

Coal prices continued to drop slightly. The comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) dropped RMB1/tonne to RMB576/tonne last week. The index was down 4.1% on a year-on-year (YoY) basis.

SASAC approved the merger between CNBM and SINOMA. Last week, the State-owned Assets Supervision and Administration Commission (SASAC) officially agreed to the merger between CNBM [3323.HK; BUY] and SINOMA [1893.HK; NOT RATED]. The next important date will be December 6. SINOMA will hold an EGM on that day to seek shareholders’ approval for the merger. Based on the latest price of CNBM, the implied offer price to SINOMA shareholders is HK$5.98, which is largely in line with the market price of SINOMA (HK$5.84). This suggests there is very limited room for arbitrage.

Cement stocks under coverage increased 0.7% on average. The sector’s share price performance was relatively stable last week. Best performer Conch Cement [914.HK; HOLD] was up 2.9% week on week. CNBM, the weakest among our coverage stocks, dropped 3.3% week on week.

China Cement Sector

Sources: Company, Bloomberg, CGIS Research estimates

Valuation Table

Net debt/equity (%)

Company Ticker Rating Price (HK$) Market cap (US$m) 2016 2017E 2018E 2016 2017E 2018E 2016 2017E 2018E 2017EConch Cement 914 HK Equity HOLD 36.05 23,516 19.8 12.7 11.7 2.18 1.84 1.71 10.5 7.7 7.0 Net cashCNBM 3323 HK Equity BUY 7.04 4,873 35.5 10.5 8.6 0.79 0.72 0.69 11.0 8.6 7.9 211 BBMG 2009 HK Equity HOLD 3.67 8,404 14.7 11.3 9.3 0.77 0.74 0.68 15.1 9.9 8.5 84 CR Cement 1313 HK Equity BUY 5.11 4,280 17.8 9.2 9.0 1.28 1.17 1.09 9.8 6.8 6.8 43

Simple average 21.9 10.9 9.7 1.26 1.12 1.04 11.6 8.3 7.6 112 Weighted average 20.4 11.8 10.6 1.63 1.41 1.32 11.4 8.2 7.4 47

PER (x) PBR (x) EV/EBITDA(x)

2016 -2018E PEG(x)

Company Ticker 2017E 2018E CAGR (%) 2017E 2016 2017E 2018E 2016 2017E 2018EConch Cement 914 HK Equity 51.8 10.8 29.7 0.4 11.48 15.55 15.30 1.6 3.1 3.0 CNBM 3323 HK Equity 229.0 25.7 103.4 0.1 2.22 7.06 8.29 0.7 2.0 2.3 CR Cement 1313 HK Equity 93.4 1.8 40.3 0.3 7.14 13.32 12.53 1.8 5.1 5.1 BBMG 2009 HK Equity 27.2 23.7 25.5 0.4 5.64 6.48 7.54 1.7 1.7 1.8

Simple average 100.4 15.5 49.7 0.3 6.62 10.60 10.91 1.4 3.0 3.1 Weighted average 72.1 14.3 38.7 0.4 8.73 12.46 12.59 1.5 2.9 2.9

EPS Growth (%) ROE (%) Dividend yield (%)

2

1-Year Relative Performance

Sources: Bloomberg, CGIS Research

Peer Comparison

Sources: Bloomberg, CGIS Research

Market capCompany Ticker Rating Price (LC) (US$m) 2016 2017E 2018E 2016 2017E 2018E 2016 2017E 2018EConch Cement 914 HK Equity HOLD 36.05 23,516 19.8 12.7 11.7 2.18 1.84 1.71 10.5 7.7 7.0 CNBM 3323 HK Equity BUY 7.04 4,873 35.5 10.5 8.6 0.79 0.72 0.69 11.0 8.6 7.9 BBMG 2009 HK Equity HOLD 3.67 8,404 14.7 11.3 9.3 0.77 0.74 0.68 15.1 9.9 8.5 CR Cement 1313 HK Equity BUY 5.11 4,280 17.8 9.2 9.0 1.28 1.17 1.09 9.8 6.8 6.8 China National Materials 1893 HK Equity NR 5.84 2,674 20.1 12.3 11.0 0.98 0.99 0.83 9.2 6.5 6.3 Asia Cement 743 HK Equity NR 2.69 540 9.9 10.6 8.9 0.37 0.37 0.35 5.7 5.3 5.3 West China Cement 2233 HK Equity NR 1.13 786 15.2 9.7 7.8 0.85 0.81 0.75 5.8 4.5 4.2 Tianrui Cement 1252 HK Equity NR 4.79 1,804 18.4 n.a. n.a. 1.31 n.a. n.a. 11.5 n.a. n.a.Simple average 15.9 10.9 9.5 0.88 0.95 0.87 8.0 7.1 6.6 Weighted average 20.1 11.3 10.1 1.55 1.31 1.22 11.1 7.7 7.0

PER (x) PBR (x) EV/EBITDA(x)

3

Figure 1: Regional Cement Price

Sources: Digital Cement, CGIS Research

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National Average (P.O. 42.5)

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Figure 2: Cement Prices in Major Cities (1)


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Tianjin

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Taiyuan, Shanxi

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Shenyang, Liaoning

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Changchun, Jilin

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Hangzhou, Zhejiang

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Fuzhou, Fujian

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Jinan, Shandong

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Zhengzhou, Henan

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Wuhan, Hubei

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Changsha, Hunan

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Guangzhou, Guangdong

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Nanning, Guangxi

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Haikou, Hainan

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Figure 6: Cement Prices (Late-November) (RMB/Tonne)


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Figure 7: Cement Inventory Level (%)


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.02.26

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.02.26

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.05.20

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2017.08.04

2017.11.03

Northwest China

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Figure 8: Clinker Capacity Breakdown by Region (2016)

Note: The larger regional exposure of each company is highlighted in darker red blanks.

Sources: Digital Cement, China Cement Association, CGIS Research

Anhui Conch CNBM CR Cement Shanshui BBMG TCCI Asia Cement WCC Huaxin-Lafarge Sinoma Group0914.HK 3323.HK 1313.HK 0691.HK 2009.HK 1136.HK 0743.HK 2233.HK

East ChinaAnhui 36.8% 5.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.2%Fujian 0.0% 0.5% 10.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Jiangsu 1.9% 6.0% 0.0% 0.0% 0.0% 8.7% 0.0% 0.0% 0.0% 6.1%Jiangxi 3.8% 4.7% 0.0% 0.0% 0.0% 0.0% 42.0% 0.0% 0.0% 2.6%Shandong 0.8% 12.0% 0.0% 51.7% 2.2% 0.0% 0.0% 0.0% 0.0% 0.0%Zhejiang 1.6% 11.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Shanghai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Total 44.9% 40.2% 10.9% 51.7% 2.2% 8.7% 42.0% 0.0% 0.0% 13.9%

South Central ChinaGuangdong 7.5% 0.0% 29.1% 0.0% 0.0% 26.6% 0.0% 0.0% 2.4% 7.8%Guangxi 8.2% 2.1% 39.1% 0.0% 0.0% 16.4% 0.0% 0.0% 0.0% 0.0%Hainan 0.0% 0.0% 5.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Hunan 10.7% 7.5% 0.0% 0.0% 1.5% 5.9% 0.0% 0.0% 11.2% 4.3%Hubei 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 25.1% 0.0% 38.0% 0.0%Henan 0.0% 5.8% 0.0% 2.6% 1.5% 0.0% 0.0% 0.0% 2.4% 0.0%Total 26.5% 15.4% 73.3% 2.6% 3.1% 48.9% 25.1% 0.0% 53.9% 12.1%

North ChinaBeijing 0.0% 0.0% 0.0% 0.0% 3.9% 0.0% 0.0% 0.0% 0.0% 0.0%Tianjin 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Hebei 0.0% 1.0% 0.0% 0.0% 48.3% 0.0% 0.0% 0.0% 0.0% 0.0%Shanxi 0.0% 0.8% 7.3% 14.2% 10.9% 0.0% 0.0% 0.0% 0.0% 0.0%Inner Mongolia 0.0% 3.4% 0.0% 9.0% 7.2% 0.0% 0.0% 0.0% 0.0% 5.2%Total 0.0% 5.2% 7.3% 23.1% 70.2% 0.0% 0.0% 0.0% 0.0% 5.2%

Northeast ChinaHeilongjiang 0.0% 4.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Jilin 0.0% 2.2% 0.0% 2.1% 4.6% 0.0% 0.0% 0.0% 0.0% 0.0%Liaoning 0.0% 0.8% 0.0% 17.8% 2.0% 3.4% 0.0% 0.0% 0.0% 0.0%Total 0.0% 7.3% 0.0% 19.9% 6.6% 3.4% 0.0% 0.0% 0.0% 0.0%

Southwest ChinaChongqing 3.2% 3.3% 0.0% 0.0% 5.1% 6.8% 0.0% 0.0% 10.1% 0.0%Sichuan 4.4% 13.1% 0.0% 0.0% 0.0% 10.2% 32.9% 0.0% 12.6% 0.0%Guizhou 9.6% 9.2% 2.4% 0.0% 0.0% 12.5% 0.0% 5.1% 4.4% 0.0%Yunnan 3.0% 6.3% 6.1% 0.0% 0.0% 9.5% 0.0% 0.0% 16.6% 0.0%Tibet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.4% 0.0%Total 20.2% 32.0% 8.5% 0.0% 5.1% 39.1% 32.9% 5.1% 46.1% 0.0%

Northwest ChinaGansu 2.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 25.7%Shaanxi 5.2% 0.0% 0.0% 0.0% 12.8% 0.0% 0.0% 80.3% 0.0% 1.7%Qinghai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5%Ningxia 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9.1%Xinjiang 0.4% 0.0% 0.0% 2.6% 0.0% 0.0% 0.0% 14.6% 0.0% 28.8%Total 8.4% 0.0% 0.0% 2.6% 12.8% 0.0% 0.0% 94.9% 0.0% 68.8%

Grand Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

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Figure 9: Market Share in Terms of Clinker Capacity (2016)

Note: Market leader in each province is highlighted in darker red blanks. Market leader in each region is highlighted as red texts.

Sources: Digital Cement, China Cement Association, CGIS Research

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Disclaimer

This research report is not directed at, or intended for distribu on to or used by, any person or en ty who is a ci zen or resident of or located in any jurisdic on where such distribu on, publica on, availability or use would be contrary to applicable law or regula on or which would subject China Galaxy Interna onal Securi es (Hong Kong) Co., Limited (“Galaxy Interna onal Securi es”) and/or its group companies to any registra on or licensing requirement within such jurisdic on.

This report (including any informa on a ached) is issued by Galaxy Interna onal Securi es, one of the subsidiaries of the China Galaxy Interna onal Financial Holdings Limited, to the ins tu onal clients from the informa on sources believed to be reliable, but no representa on or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness.

This report shall not be construed as an offer, invita on or solicita on to buy or sell any securi es of the company(ies) referred to herein. Past perfor‐mance should not be taken as an indica on or guarantee of future performance, and no representa on or warranty, express or implied, is made regard‐ing future performance. The recipient of this report should understand and comprehend the investment objec ves and its related risks, and where necessary consult their own independent financial advisers prior to any investment decision.

Where any part of the informa on, opinions or es mates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published views or investment decisions of China Galaxy Interna onal Financial Holdings Limited and any of its subsidiaries (“China Galaxy Interna onal”), directors, officers, agents and employees (“the Relevant Par es”).

All opinions and es mates reflect the judgment of the analyst on the date of this report and are subject to change without no ce. China Galaxy Interna‐onal and/or the Relevant Par es hereby disclaim any of their liabili es arising from the inaccuracy, incorrectness and incompleteness of this report

and its a achment/s and/or any ac on or omission made in reliance thereof. Accordingly, this report must be read in conjunc on with this disclaimer.

Disclosure of Interests

China Galaxy Securi es Co., Ltd. (6881.HK; 601881.CH) is the direct and/or indirect holding company of the group of companies under China Galaxy Interna onal.

China Galaxy Interna onal may have financial interests in rela on to the subjected company(ies) the securi es in respect of which are reviewed in this report, and such interests aggregate to an amount may equal to or more than 1 % of the subjected company(ies)’ market capitaliza on.

One or more directors, officers and/or employees of China Galaxy Interna onal may be a director or officer of the securi es of the company(ies) men‐oned in this report.

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posi on or holding, or other material interest, or effect transac ons, in such securi es or op ons thereon, or other investments related thereto.

China Galaxy Interna onal may have served as manager or co‐manager of a public offering of securi es for, or currently may make a primary market in issues of, any or all of the en es men oned in this report or may be providing, or have provided within the last 12 months, significant advice or invest‐ment services in rela on to the investment concerned or a related investment or investment banking services to the company(ies) men oned in this report.

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Analyst Cer fica on

The analyst who is primarily responsible for the content of this report, in whole or in part, cer fies that with respect to the securi es or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securi es or issuer; and (2) no part of his or her compensa on was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report.

Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securi es and Futures Commission) (1) have dealt in or traded in the securi es covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securi es covered in this research report three business days a er the date of issue of this report; (3) serve as an officer of any of the Hong Kong‐listed companies covered in this report; and (4) have any financial interests in the Hong Kong‐listed companies cov‐ered in this report.

Explana on on Equity Ra ngs

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No part of this material may be reproduced or redistributed without the prior wri en consent of China Galaxy Interna onal Securi es (Hong Kong) Co., Limited.

China Galaxy Interna onal Securi es (Hong Kong) Co. Limited, CE No.AXM459

20/F, Wing On Centre, 111 Connaught Road Central, Sheung Wan, Hong Kong. General line: 3698‐6888.

BUY share price will increase by >20% within 12 months in absolute termsSELL share price will decrease by >20% within 12 months in absolute termsHOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL

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