20160307-中国银河国际证券-China_Cement_Weekly_Market_Sentiment_Running_Ahead_of_Fundamentals_Prepare_to_Take_Profit_12页_1mb

China Cement Sector Summary

Core Content

The China cement sector is currently experiencing a situation where market sentiment is outpacing fundamental performance. This report provides an overview of recent price trends, inventory levels, and stock performance, along with insights into the valuation and market share distribution of major players.

Key Market Trends

• Cement Prices:

  • Nationally, cement prices dropped by 0.52% week-on-week to RMB237.25/tonne.
  • Prices in Beijing, Shanghai, Jiangxi, Guangxi, and Hubei fell by RMB10-30/tonne due to competitive pricing strategies.
  • In contrast, Shandong and Sichuan saw price increases of RMB10-20/tonne due to better coordination among producers.
  • Clinker prices in the Yangtze River Delta region rose by about RMB20/tonne, though the sustainability of this increase remains uncertain.

• Inventory Levels:

  • Average inventory levels declined slightly to 72.74% nationwide, indicating a possible tightening in supply.

• Coal Prices:

  • Coal prices showed a steady recovery, with the comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) increasing by RMB4/tonne to RMB385/tonne.
  • The index was 22.4% lower on a year-on-year basis, narrowing by 2 percentage points from the previous week.

Stock Performance

• Sector Performance:

  • Cement stocks under coverage rose by an average of 18.7%.
  • Anhui Conch [0914.HK; HOLD] was the best performer, up 23.7%.
  • CNBM [3323.HK; SELL] was the weakest, but still rose by 12.1%.

• YTD Performance:

  • CNBM and CR Cement [1313.HK; HOLD] posted small positive gains on a year-to-date basis.
  • Anhui Conch and BBMG [2009.HK; BUY] still recorded single-digit losses YTD, suggesting the previous rally in January has largely been recovered.

Valuation Insights

• PER (Price-to-Earnings Ratio):

  • Anhui Conch: 7.3 (2014), 11.4 (2015E), 13.1 (2016E)
  • CNBM: 3.0 (2014), 19.1 (2015E), 17.9 (2016E)
  • CR Cement: 3.7 (2014), 6.4 (2015E), 10.0 (2016E)
  • BBMG: 8.6 (2014), 8.9 (2015E), 6.2 (2016E)
  • Shanshui Cement: 45.9 (2014), 42.2 (2015E), 34.7 (2016E)

• PBR (Price-to-Book Ratio):

  • Anhui Conch: 1.28 (2014), 0.98 (2015E), 0.93 (2016E)
  • CNBM: 0.43 (2014), 0.38 (2015E), 0.37 (2016E)
  • CR Cement: 0.56 (2014), 0.49 (2015E), 0.48 (2016E)
  • BBMG: 0.63 (2014), 0.53 (2015E), 0.50 (2016E)
  • Shanshui Cement: 1.58 (2014), 1.52 (2015E), 1.47 (2016E)

• EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization):

  • Anhui Conch: 4.1 (2014), 6.1 (2015E), 6.1 (2016E)
  • CNBM: 7.4 (2014), 10.0 (2015E), 10.7 (2016E)
  • CR Cement: 3.9 (2014), 6.7 (2015E), 6.6 (2016E)
  • BBMG: 8.4 (2014), 8.0 (2015E), 6.4 (2016E)
  • Shanshui Cement: 10.6 (2014), 10.3 (2015E), 9.4 (2016E)

• Net Debt/Equity (%):

  • CNBM: 249% (2015E)
  • BBMG: 65% (2015E)
  • CR Cement: 56% (2015E)
  • Shanshui Cement: 134% (2015E)

Key Investment Considerations

• The planned fiscal deficit for 2016 is RMB2.18trn, which is relatively conservative, and railway investment remains at RMB800bn.
• Provincial FAI targets for 2016 were generally reduced compared to 2015.
• Property developers are cautious about land purchases and are focusing on inventory clearance.
• Coal prices have rebounded due to low inventory, but cement prices remain weak, potentially affecting profit margins.

Market Share by Region (2015)

• East China:

  • Anhui: 53.0%
  • Jiangsu: 26.5%
  • Zhejiang: 56.6%

• South Central China:

  • Guangdong: 16.2%
  • Guangxi: 22.0%
  • Hunan: 10.7%

• North China:

  • Hebei: 39.7%
  • Shanxi: 10.2%
  • Inner Mongolia: 10.3%

• Southwest China:

  • Sichuan: 12.6%
  • Guizhou: 8.8%
  • Yunnan: 9.5%

• Northwest China:

  • Shaanxi: 5.1%
  • Gansu: 3.2%
  • Qinghai: 2.3%
  • Ningxia: 0.0%
  • Xinjiang: 38.8%

Conclusion

The cement sector is currently in a state where market sentiment is ahead of fundamentals, leading to a potential overvaluation. Investors should exercise caution as the rally may not be sustainable. The sector's performance is influenced by factors such as fiscal policy, supply-side reforms, and the behavior of property developers. Valuation metrics indicate varying levels of optimism and caution among different companies, with some showing strong performance while others remain under pressure. The market share data highlights the dominance of certain companies in specific regions, which may impact future market dynamics.