20180410-中国银河国际证券-Sector_Report__Positive_Profit_Alert_by_Conch_Cement_to_Trigger_Another_Round_of_Rallies_15页_1mb

China Cement Sector Report Summary - April 10, 2018

Core Content

This report provides an analysis of the China cement sector, focusing on four major companies: Conch Cement (0914.HK), CNBM (3323.HK), CR Cement (1313.HK), and BBMG (2009.HK). The key areas of discussion include financial performance, earnings revisions, target price updates, and market outlook.

Main Points

1. Earnings and Performance Highlights

• Conch Cement reported a Q1 2018 net profit growth of 120% YoY to RMB4.74bn, driven by strong cement prices. The gross profit per tonne for cement and clinker is expected to reach over RMB120, which is a high level for a low season.
• CNBM and CR Cement are also expected to benefit from the favorable cement price trends, with their gross profit per tonne increasing to RMB88 and HK$136, respectively.
• The report raises the FY18E EPS for Conch Cement, CNBM, and CR Cement by 10.8%, 8.3%, and 5.2%, respectively.
• The current consensus forecast of RMB19bn for Conch Cement appears conservative, as Q1 is usually a low season.

2. Target Price Revisions

• The target price for Conch Cement is raised from HK$52 to HK$57.75, based on a revised PBR of 2.45x (previous: 2.25x).
• CNBM's target price is lifted from HK$10.97 to HK$12, assuming the merger with SINOMA is completed, based on a PBR of 1.2x (previous: 1.1x).
• CR Cement's target price is increased from HK$7.7 to HK$8.27, based on a PBR of 1.6x (previous: 1.5x).
• BBMG's target price remains unchanged, as its Q1 performance is typically limited due to low activity in northern China during winter.

3. Market Outlook

• The report anticipates further cement price hikes after the Qingming Festival due to the recovery of downstream demand and low inventory levels.
• Investors are advised to watch for potential profit-taking during the rainy season, which may temporarily weaken cement demand.

Key Financials

1. Conch Cement (00914.HK)

• Earnings: Q1 2018 net profit is expected to be RMB4.74bn, up 120% YoY.
• Gross Profit per Tonne: Increased from RMB105 to RMB114.
• EPS Growth: Raised by 10.8% for FY18E.
• Valuation Metrics:
  • PBR: Raised from 2.25x to 2.45x.
  • PER: Reduced from 14.4 to 9.6.
  • EV/EBITDA: Reduced from 8.1 to 5.7.
• Growth Rates:
  • Revenue: Increased by 16% in 2017.
  • EBIT: Increased by 35% in 2018E.
  • EBITDA: Increased by 40.4% in 2018E.
• Margins and Ratios:
  • Gross margin: Increased from 26.9% to 40.4%.
  • Net margin: Increased from 12.1% to 25.7%.
  • ROE: Increased from 17.5% to 22.1%.

2. CNBM (3323.HK)

• EPS Growth: Raised by 8.3% for FY18E.
• Target Price: Increased from HK$10.97 to HK$12.
• Valuation Metrics:
  • PBR: Raised from 1.1x to 1.2x.
  • PER: Reduced from 12.1 to 7.0.
  • EV/EBITDA: Reduced from 9.1 to 7.4.
• Growth Rates:
  • Revenue: Increased by 35% in 2018E.
  • EBIT: Increased by 51% in 2018E.
• Margins and Ratios:
  • Gross margin: Increased from 71% to 88%.
  • Net margin: Increased from 15.8% to 20.0%.
  • ROE: Increased from 7.86% to 12.67%.

3. CR Cement (1313.HK)

• EPS Growth: Raised by 5.2% for FY18E.
• Target Price: Increased from HK$7.7 to HK$8.27.
• Valuation Metrics:
  • PBR: Raised from 1.5x to 1.6x.
  • PER: Reduced from 13.4 to 8.0.
  • EV/EBITDA: Reduced from 8.2 to 5.7.
• Growth Rates:
  • Revenue: Increased by 2.6% in 2018E.
  • EBIT: Increased by 47% in 2018E.
• Margins and Ratios:
  • Gross margin: Increased from 87% to 113%.
  • Net margin: Increased from 15.8% to 25.7%.
  • ROE: Increased from 12.67% to 17.49%.

4. BBMG (2009.HK)

• EPS Growth: No change for FY18E.
• Valuation Metrics:
  • PBR: Reduced from 0.92x to 0.68x.
  • PER: Reduced from 13.2 to 9.1.
  • EV/EBITDA: Reduced from 11.7 to 8.9.
• Growth Rates:
  • Revenue: Increased by 85.8% in 2017.
  • EBIT: Increased by 47% in 2018E.
• Margins and Ratios:
  • Gross margin: Increased from 75% to 87%.
  • Net margin: Increased from 10.6% to 17.0%.
  • ROE: Increased from 5.32% to 6.87%.

Conclusion

The report maintains a positive outlook on the cement sector, anticipating continued price increases and improved earnings. It recommends buying shares of Conch Cement, CNBM, and CR Cement due to their strong performance and revised target prices. Investors are advised to be cautious about potential profit-taking during the rainy season, as this may temporarily affect demand. The report also highlights the importance of monitoring the sector's financial metrics and market dynamics for further investment opportunities.