高盛-中国-基础材料行业-中国基础材料行业2018年10月监测-20181019-38页_1mb

China Basic Materials Monitor Summary (October 2018)

Core Content

The China Basic Materials Monitor for October 2018 highlights a two-tiered seasonal strength in demand, with construction showing solid performance while manufacturing and consumer segments remain weak. This is reflected in steel mills having full orderbooks and cement shipments improving, but base metals and packaging paper showing weaker trends. The winter suspension in production remains non-flexible, with the Tangshan area delaying its detailed plan due to increased complexity rather than a reduction in pollution control efforts. The average BF cuts are expected to settle at 30–35%, which is less than the 40% seen in the previous winter and higher than the current suspension level of 15–20%, indicating less flexibility in the sector compared to prior years.

Main Points

• Seasonal Demand Trends:

  • Construction demand is stronger than manufacturing and consumer segments.
  • Steel mills report full orderbooks, and cement shipment shows improvement.
  • Base metals and packaging paper exhibit weaker demand patterns.

• Winter Suspension:

  • Tangshan delays its detailed plan due to complexity, not a sign of weaker pollution control.
  • BF cuts are expected to be 30–35%, less than the previous winter and higher than current levels.

• Market Preferences:

  • The steel sector and steel equities are preferred for their equity risk/reward profile.
  • Aluminum and coal are also favored based on supply/demand outlook.
  • Hong Kong-listed stocks:
    • Top picks: Angang-H (on CL) and Chalco-H.
    • Least favored: CRC (Sell) due to negative sector outlook and price downside.
  • A-share listed stocks:
    • Top pick: Baosteel (Buy) due to high earnings visibility, strong cash flow, and higher dividend payout.

• Orderbook Trends:

  • End-demand and basic materials orderbooks slightly softened in October compared to September.
  • 29% of respondents expect improvement in October, 14% expect decline.
  • The trend is better than past patterns, driven by seasonal recovery in broader downstream segments.

• Inventory Levels:

  • Finished steel inventory is below normal and increasing.
  • Iron ore and coking coal are at normal levels and stable.
  • Aluminum inventory is above normal and decreasing.
  • Alumina inventory is below normal and decreasing.
  • Most finished products are also below normal.

Key Information

• Orderbook Softening:

  • 25% of respondents expect improvement in coal (vs. 0% in September).
  • 0% of respondents expect improvement in steel (vs. 0% in September).
  • 100% of respondents expect improvement in cement (vs. 100% in September).
  • 33% of respondents expect improvement in base metal fabricators and traders (vs. 17% in September).
  • 21% of respondents expect a decline in basic materials (vs. 9% in September).

• Inventory Adjustments:

  • Iron ore, hard coking coal, and OCC are at normal levels.
  • Aluminum and coal are above normal.
  • Steel, paper, copper, cement, alumina, and most finished products are below normal.

• Price and Earnings Outlook:

  • Target prices are based on a 12-month timeframe.
  • Pricing currency varies by listing: HK$ for Hong Kong-listed stocks, RMB for Shenzhen and Shanghai-listed stocks.
  • Earnings visibility and dividend payouts are key factors in the investment rating.

Summary Table

| Company | Ticker | Price Target | Rating | Upside Mkt Cap | EPS (ccy/sh) | PE | PB | ROE | EV/EBITDA | FCF Yield | Div Yield | Perf. YTD |
|---------------|--------------|--------------|--------|----------------|-------------|--------|--------|--------|----------|-----------|----------|---------|----------|
| Angang-H | 0347.HK | 6.65 | Buy* | 64% | 0.775 | 6.9 | 0.8 | 12% | 5.6 | 18% | 19% | 5.4% |
| Angang-A | 000898.SZ | 5.83 | Buy | 85% | 0.775 | 7.8 | 0.9 | 12% | 5.6 | 18% | 21% | 4.2% |
| Baosteel | 600019.SS | 7.19 | Buy | 88% | 0.861 | 8.4 | 1.0 | 12% | 5.6 | 13% | 16% | 4.5% |
| Maanshan-H | 0323.HK | 4.09 | Buy | 32% | 0.536 | 5.3 | 0.9 | 19% | 3.7 | 19% | 24% | 3.4% |
| Maanshan-A | 600808.SS | 3.84 | Buy | 59% | 0.536 | 7.3 | 1.3 | 19% | 4.5 | 18% | 22% | 3.6% |
| Chinacoal-H | 1898.HK | 3.27 | Buy | 47% | 0.263 | 12.5 | 0.5 | 4% | 8.4 | 1% | 9% | 3.3% |
| Chinacoal-A | 601898.SS | 4.72 | Neutral | 21% | 0.263 | 22.6 | 0.9 | 4% | 10.5 | 1% | 7% | 2.0% |
| Yanzhou-H | 1171.HK | 8.19 | Neutral | 15% | 1.499 | 4.0 | 0.6 | 17% | 5.9 | 8% | 6% | 5.8% |
| Yanzhou-A | 600188.SS | 10.56 | Neutral | 18% | 1.499 | 8.1 | 1.3 | 17% | 7.5 | 6% | 5% | 4.0% |
| Conch-H | 0914.HK | 42.30 | Neutral | 4% | 3.000 | 8.3 | 1.5 | 19% | 5.0 | 10% | 9% | 3.9% |
| Conch-A | 600585.SS | 33.15 | Neutral | 21% | 3.000 | 7.7 | 1.4 | 19% | 4.6 | 11% | 10% | 4.4% |
| BBMG-H | 2009.HK | 2.21 | Buy | 108% | 0.266 | 12.3 | 0.7 | 6% | 5.9 | 14% | 22% | 3.0% |
| BBMG-A | 601992.SS | 3.13 | Buy | 76% | 0.266 | 22.8 | 1.3 | 6% | 4.6 | 11% | 17% | 4.0% |
| CNBM | 3323.HK | 6.08 | Buy | 78% | 0.597 | 7.7 | 0.5 | 7% | 8.1 | 27% | 20% | 6.8% |
| CRC | 1313.HK | 8.07 | Sell | 7% | 0.554 | 7.9 | 0.9 | 13% | 5.6 | 17% | 10% | 5.6% |
| WCC | 2233.HK | 1.26 | Neutral | 27% | 0.131 | 7.5 | 0.8 | 11% | 3.9 | 21% | 23% | 6.9% |
| Chalco-H | 2600.HK | 3.02 | Buy | 85% | 0.092 | 44.5 | 1.6 | 4% | 11.2 | -1% | 1% | 0.0% |
| Chalco-A | 601600.SS | 3.43 | Buy | 75% | 0.092 | 65.7 | 2.3 | 4% | 13.3 | -1% | 0% | 0.0% |
| Hongqiao | 1378.HK | 5.46 | Buy | 76% | 0.829 | 7.9 | 1.0 | 13% | 5.0 | 22% | 27% | 3.2% |
| JXC-H | 0358.HK | 8.53 | Neutral | 35% | 0.476 | 22.8 | 0.8 | 3% | 4.9 | -14% | 3% | 4.8% |
| JXC-A | 600362.SS | 12.61 | Neutral | 36% | 0.476 | 37.3 | 1.3 | 3% | 7.7 | -9% | 5% | 5.4% |
| MMG | 1208.HK | 3.12 | Buy | 86% | 0.018 | 21.6 | 2.6 | 13% | 6.0 | 19% | 22% | 5.0% |
| Chinamoly-H | 3993.HK | 2.72 | Neutral | 36% | 0.143 | 21.1 | 1.7 | 10% | 6.1 | -14% | 14% | 4.1% |
| Chinamoly-A | 603993.SS | 3.57 | Neutral | 57% | 0.143 | 40.0 | 3.2 | 10% | 10.6 | -9% | 10% | 5.5% |
| Zijin-H | 2899.HK | 2.81 | Buy | 35% | 0.156 | 15.3 | 1.6 | 11% | 6.0 | -16% | 9% | 6.0% |
| Zijin-A | 601899.SS | 3.29 | Buy | 46% | 0.156 | 23.3 | 2.4 | 11% | 8.5 | -9% | 7% | 6.7% |
| Zhaojin | 1818.HK | 6.81 | Sell | 54% | 0.198 | 29.4 | 1.4 | 5% | 4.6 | -16% | -1% | 5.6% |
| Lee&Man | 2314.HK | 6.79 | Buy | 77% | 1.115 | 7.1 | 1.6 | 26% | 6.5 | 14% | 17% | 4.2% |
| NDPaper | 2689.HK | 7.58 | Buy | 87% | 0.939 | 7.2 | 1.1 | 16% | 6.3 | -14% | 14% | 5.9% |

Key Trends

• Seasonal Recovery: The market is experiencing a seasonal recovery in demand, with construction leading the way.
• Winter Suspension: The Tangshan suspension is more complex and less flexible than previous winters, with BF cuts expected to be 30–35%.
• Investment Outlook: Steel and steel equities are preferred, with Baosteel and Angang-H as top picks.
• Inventory Levels: Aluminum and coal are above normal, while steel, cement, and finished products are below normal.

Notes

• Target prices are based on 12-month forecasts.
• Pricing currency is HK$ for Hong Kong-listed stocks and RMB for Shenzhen and Shanghai-listed stocks.
• Conflicts of Interest: Goldman Sachs has business relationships with companies covered in the report, and this should be considered when making investment decisions.