20151214-中国银河国际证券-China_Cement_Weekly_12页_925kb

China Cement Sector Summary

Core Content

The China cement sector experienced a continued decline in production and prices in early December, with weak demand and limited policy support contributing to the downward trend. The market sentiment for cement stocks remains subdued, with most trading below book value and showing significant price drops.

Key Information

• Cement Prices:

  • Cement prices fell slightly nationwide, with an average decline of 1.21% week-on-week to RMB250/tonne.
  • In parts of Jiangsu and Zhejiang provinces, prices dropped by RMB20-30/tonne.
  • Prices in major regions (excluding Hunan, Jiangxi, and Hubei) reached the lowest level since August.

• Cement Production:

  • November 2015 cement production dropped 6.6% YoY to 20.94m tonnes.
  • Year-to-date production was 2,147m tonnes, down 5.1% YoY.
  • The decline in production widened from 3.5% in October to 6.6% in November.
  • Fixed asset investment growth stabilized at 10.2% in 11M2015, aligning with the level in 10M2015.

• Stock Performance:

  • Cement stocks under coverage plunged 8.1% on average last week.
  • Anhui Conch was the best performer, dropping 4.1% to HK$20.9/share.
  • CNBM was the weakest, declining 11.7%.
  • Most cement stocks are trading deeply below book value, with some at levels lower than the 2012 valuation trough.

• Valuation Metrics:

  • PER (x): The weighted average PER for 2015E is 14.8, and for 2016E is 12.8.
  • EV/EBITDA (x): The weighted average EV/EBITDA for 2015E is 8.1, and for 2016E is 7.1.
  • Net Debt/Equity (%): The weighted average net debt/equity ratio is 60%.

Main Views

• The cement sector faces weak end-demand and continued de-stocking.
• Economic stimulus has not significantly boosted fixed asset investment, leading to weak share prices.
• Cement stocks are undervalued from an asset perspective and lack major catalysts for recovery.
• Supply side reform may provide some relief, but its impact on market sentiment is yet to be seen.

Regional Analysis

• East China:

  • Anhui Conch and CNBM have the largest regional exposure.
  • Anhui accounts for 51.7% of Anhui Conch's market share, while Jiangsu is the main region for CNBM.

• South Central China:

  • Guangxi and Hunan have significant market shares.
  • Guangxi is the largest market for Shanshui Cement and BBMG.

• North China:

  • Hebei and Inner Mongolia are key regions.
  • Hebei is the main market for CNBM and BBMG.

• Northeast China:

  • Heilongjiang and Liaoning dominate.
  • Heilongjiang is the main market for CNBM.

• Southwest China:

  • Sichuan and Guizhou are key regions.
  • Sichuan is the main market for BBMG.

• Northwest China:

  • Gansu and Shaanxi are key regions.
  • Gansu is the main market for BBMG.

Conclusion

The cement sector is under pressure due to weak demand and undervaluation. The lack of meaningful economic stimulus and ongoing de-stocking have led to a decline in prices and stock performance. While some companies may benefit from supply side reforms, the overall market sentiment remains weak.