20161205-中国银河国际证券-10M16_Industry_Profit_Continued_Year-on-Year_Recovery__Pay_Attention_to_Potential_Short-term_Profit-Taking_12页_1mb

China Cement Sector Summary

Core Content

The China cement sector experienced continued year-on-year profit recovery in the first ten months of 2016 (10M16), with industry profit rising 47% YoY to RMB33.2 billion. Despite a 1.87% decline in total revenue to RMB695.2 billion, the October profit reached RMB8.34 billion, marking a new annual high. This profit increase is attributed to stronger pricing power and improved production coordination.

Cement prices saw a slight rise last week, with the nationwide average increasing by 0.42% week-on-week to RMB318.75/tonne. Prices in Fuzhou, Zhengzhou, and Ningbo rose by RMB20-30/tonne, while Tianjin and Guangxi saw a decline of RMB10/tonne. Notably, Chongqing experienced a significant increase of RMB50/tonne. The average inventory level nationwide dropped slightly to 64.69%, indicating improved demand.

Coal prices continued to decline slightly, with the Bohai Rim Steam Coal (Q5500K) index falling RMB2/tonne to RMB599/tonne. However, the index remained 61.0% higher YoY. The report suggests that further upside for cement prices may be limited due to a potential short-term peak in coal prices and a temporary slowdown in construction activities around mid-January, influenced by an early Lunar New Year.

Key Information

• Industry Profit (10M16): RMB33.2 billion (+47% YoY)
• Total Revenue (10M16): RMB695.2 billion (-1.87% YoY)
• October Profit: RMB8.34 billion (new annual high)
• Cement Price (Nationwide): RMB318.75/tonne (+0.42% Wk-Wk)
• Average Inventory Level (Nationwide): 64.69% (slight decline)
• Bohai Rim Steam Coal (Q5500K) Price: RMB599/tonne (-RMB2/tonne Wk-Wk; +61.0% YoY)

Main Points

• Profit Recovery: The cement industry's profit has continued to recover, driven by better pricing and production coordination.
• Price Trends: Regional price movements varied, with some areas experiencing significant increases while others saw declines.
• Investor Behavior: Short-term profit-taking may occur due to potential price reversal factors, such as coal price peaks and construction activity slowdowns.
• Valuation: The valuation of cement stocks shows varying PER and EV/EBITDA multiples, with Anhui Conch and BBMG rated as BUY, while ONBM is rated HOLD.
• Market Sentiment: Overall market sentiment was weak due to the Italian referendum on December 4, impacting stock performance.

Key Stock Performance

• Anhui Conch (0914.HK): Price RMB22.60, Market Cap RMB14,551 million, Rating BUY
• ONBM (3323.HK): Price RMB3.99, Market Cap RMB2,762 million, Rating HOLD
• BBMG (2009.HK): Price RMB2.95, Market Cap RMB6,461 million, Rating BUY
• CR Cement (1313.HK): Price RMB3.34, Market Cap RMB2,797 million, Rating BUY

Valuation Metrics

Peer Comparison

Regional Clinker Capacity Breakdown (2015)

• East China: Anhui Conch (53.0%), CNBM (11.3%), Jiangsu (5.6%), Jiangxi (12.3%), Shandong (1.3%), Zhejiang (5.1%), Shanghai (0.0%)
• South Central China: Guangdong (16.2%), Guangxi (22.0%), Hainan (0.0%), Hunan (26.4%), Hubei (0.0%), Henan (0.0%)
• North China: Beijing (0.0%), Tianjin (0.0%), Hebei (0.0%), Shanxi (0.0%), Inner Mongolia (0.0%)
• Northeast China: Heilongjiang (0.0%), Jilin (0.0%), Liaoning (0.0%)

Market Share in Terms of Clinker Capacity (2015)

• East China: Anhui Conch (17.7%), CNBM (25.4%), CR Cement (1.4%), Shanshui (6.2%), BBMG (0.0%), TCCI (0.8%), Asia Cement (1.8%), WCC (3.0%), Sinoma Group (0.4%), Jidong (0.0%), Huaxin (0.0%)
• South Central China: Guangdong (12.1%), Guangxi (10.6%), Hainan (10.1%), Hunan (5.2%), Hubei (1.2%), Henan (8.2%)
• North China: Beijing (6.3%), Tianjin (5.7%), Hebei (12.6%), Shanxi (5.7%), Inner Mongolia (1.9%)

Conclusion

The cement sector in China is showing signs of recovery, with continued profit growth and rising prices. However, short-term profit-taking may occur due to external factors such as coal prices and construction activity. The sector remains attractive for long-term investment, with strong fundamentals and optimistic earnings outlook for the coming months.