Anhui Conch [0914.HK]

Transcription

1 Anhui Conch [0914.HK] Due to high base effect in 1H14 and weak cement price trend year-to-date, we forecast Anhui Conch s 1H15 recurring net profit to decline 41% year-on-year (YoY) to RMB3.45bn. As a result of a weaker-than-expected price trend, we cut our FY15E/16E EPS by 12%/8.6% to RMB1.553/RMB However, trading at a 6-year low PBR of 1.52x, we believe the upside risk is higher than its downside on the back of the peak season starting from late Q3/early Q4. Thanks to a low base in 2H14, we expect to see much smaller pressure on YoY comparison in 2H15 (7% decline of net profit). Therefore we maintain our target price of HK$32.15, based on 1.9x 2015E PBR (the mid-point between six-year average and 1 standard deviation). Upgrade from HOLD to BUY with a 25% upside. The counter is likely to be investors first pick for betting on cement price rebound, due to its market leadership, solid balance sheet and good trading volume. Investment Highlights 1H Preview: Recurring Net Profit to Drop 41%; Upgrade to BUY on Valuation 1H15 recurring net profit to drop 41% YoY due to 34% decline in gross profit per tonne. We expect Anhui Conch s 1H15 total revenue to drop by 12% YoY to RMB25.3bn, blended ASP (cement and clinker) to decline by 15% YoY to RMB209.4/tonne, while 1H15 sales volume to mildly increase by 3.6% YoY to 117.6m tonnes. We project 1H15 gross profit per tonne of RMB60, implying a YoY decrease of 34%. Cement price weakness in 1H15 was mainly due to lukewarm demand nationwide and regional competition for market share gain in major operating areas such as east and south China. We also expect the company s reported net profit to decline 22.6% YoY to RMB4.5bn, including a pre-tax gain of RMB1.35bn from the disposal of investment in Qingsong Building Materials [ CH] and Jidong Cement [ CH]. Wait for potential price rebound in late Q3 or early Q4. Initial signs of price stabilization has been witnessed recently, driven by rural area demand with mild price hike week-on-week on the back of better weather conditions and self-discipline of industry players. As proportion of loss-making firms kept climbing amid sluggish market conditions, there exists potential chance for coordination in peak season among leading players in Anhui, Guangdong and other major operating regions. In addition, positive impact of economic stimulus packages through infrastructure investment by central and local government in 1H15 is likely to be gradually reflected, which would contribute to potential cement price rebound in late Q3 or early Q4. BUY Close: HK$25.65 (August 4, 2015) Target Price: HK$32.15 (+25%) Price Performance (HK$) Market Cap Shares Outstanding Auditor US$17,555m 5,299.3m KPMG Free Float 63.8% 52W range China Cement Sector 3M average daily T/O Major Shareholding Sources: Company, Bloomberg August 5, Aug14 Oct14 Dec14 Feb15 Apr15 Jun15 Turnover (RHS) Price (LHS) (HK$ million) HK$ US$41.3m Conch Holdings (36.2%) 0 Valuation in line with the trough in last industry cycle. Trading at 1.52x 2015E PBR and 7.3x 2015E EV/EBITDA, it is largely in line with the trough level in the previous industry cycle, which should reflect most of market concerns, in our view. Wong Chi Man Head of Research (852) Y/E Dec E 2016E Turnover (RMB m) 45,766 55,262 60,759 57,957 63,365 Recurring net profit (RMB m) 6,293 9,504 10,951 8,232 8,811 Net margin (%) Recurring EPS (RMB) % Change (45) (25) 7 PER (x) PBR (x) EV/EBITDA (x) Sources: Company, CGIHK Research cmwong@chinastock.com.hk Nevin Ning Analyst (852) nevinning@chinastock.com.hk 1

2 Key financials Anhui Conch (00914.HK) Income Statement (RMB'000, except for per share amount) E Year ended 31 Dec 1H 2H 1H 2H 1H 2H E 2016E Revenue 23,587,088 31,674,589 28,784,483 31,974,018 25,393,984 32,563,459 45,766,203 55,261,677 60,758,501 57,957,443 63,364,879 COGS (17,023,072) (20,251,896) (18,598,993) (21,961,099) (18,495,862) (23,054,793) (33,264,544) (37,274,968) (40,560,092) (41,550,655) (45,569,475) Gross profit 6,564,016 11,422,693 10,185,490 10,012,919 6,898,122 9,508,666 12,501,659 17,986,709 20,198,409 16,406,788 17,795,404 Operating expenses (2,212,686) (2,873,948) (2,404,103) (3,220,149) (2,528,537) (3,359,181) (4,458,118) (5,086,634) (5,624,252) (5,887,717) (6,204,130) Operating profit 4,351,330 8,548,745 7,781,387 6,792,770 4,369,585 6,149,485 8,043,541 12,900,075 14,574,157 10,519,071 11,591,274 Other income and gains 445, , , , , ,142 1,054, , ,763 1,106,022 1,132,586 EBIT 4,796,735 9,021,882 8,266,341 7,299,579 4,883,465 6,741,628 9,098,537 13,818,617 15,565,920 11,625,093 12,723,860 Net finance costs (532,341) (436,278) (371,008) (247,929) (319,533) (262,050) (998,855) (968,619) (618,937) (581,583) (512,638) Profits from associates and JCEs (42,416) 16,734 (26,652) (32,826) (10,000) 34,000 (22,829) (25,682) (59,478) 24,000 24,000 Non-recurrent items (141,407) (11,740) (2,199) 41,736 1,401,509-48,844 (153,147) 39,537 1,401,509 - Income before tax 4,080,571 8,590,598 7,866,482 7,060,560 5,955,441 6,513,577 8,125,697 12,671,169 14,927,042 12,469,019 12,235,222 Income tax expense (912,014) (1,938,151) (1,741,894) (1,618,289) (1,268,509) (1,530,691) (1,639,068) (2,850,165) (3,360,183) (2,799,200) (2,960,219) Minority interests (110,040) (321,666) (313,727) (272,215) (187,477) (199,315) (155,526) (431,706) (585,942) (386,793) (463,750) Net income 3,058,517 6,330,781 5,810,861 5,170,056 4,499,455 4,783,571 6,331,103 9,389,298 10,980,917 9,283,026 8,811,253 Recurring net income 3,164,573 6,339,586 5,812,510 5,138,754 3,448,323 4,783,571 6,293,042 9,504,159 10,951,264 8,231,894 8,811,253 EPS (RMB) Recurring EPS (RMB) DPS (RMB) Depreciation and amortization 1,751,688 1,822,365 1,897,808 1,929,961 2,101,594 2,379,670 3,275,946 3,574,053 3,827,769 4,481,263 4,968,002 EBITDA 6,506,007 10,860,981 10,137,497 9,196,714 6,975,059 9,155,297 12,351,654 17,366,988 19,334,211 16,130,356 17,715,862 Cement and clinker ASP (Rmb/tonne) Cement and clinker vol. ('000 tonnes) 103, , , , , , , , , , ,281 Cost per tonne (Rmb) Gross profit per tonne (Rmb) Growth Rates: Revenue 15% 26% 22% 1% -12% 2% -6% 21% 10% -5% 9% EBIT 16% 81% 72% -19% -41% -8% -44% 52% 13% -25% 9% EBITDA 15% 62% 56% -15% -31% 0% -34% 41% 11% -17% 10% Core net income 8% 89% 84% -19% -41% -7% -45% 51% 15% -25% 7% Recurring EPS 8% 89% 84% -19% -41% -7% -45% 51% 15% -25% 7% Margins and Ratios: Gross margin 27.8% 36.1% 35.4% 31.3% 27.2% 29.2% 27.3% 32.5% 33.2% 28.3% 28.1% Net margin 13.9% 21.0% 21.3% 16.9% 14.3% 15.3% 14.1% 18.0% 19.0% 14.9% 14.6% EBIT margin 20.3% 28.5% 28.7% 22.8% 19.2% 20.7% 19.9% 25.0% 25.6% 20.1% 20.1% EBITDA margin 27.6% 34.3% 35.2% 28.8% 27.5% 28.1% 27.0% 31.4% 31.8% 27.8% 28.0% Effective tax rate 22% 23% 22% 23% 21% 24% 20% 22% 23% 25% 24% Sources: Company data, CGIHK Research estimates 2

3 Key financials Anhui Conch (00914.HK) Balance Sheet (RMB'000, except for per share amount) Statement of Cash Flow As at 31 Dec E 2016E Year ended 31 Dec E 2016E Inventories 4,038,538 3,692,690 4,375,977 4,600,000 5,000,000 Profit before tax 8,125,697 12,671,169 14,927,042 12,469,019 12,235,222 Trade receivables 230, , , , ,000 Depreciation & Amortization 3,105,016 3,429,022 3,773,534 4,251,263 4,718,002 Bills receivable 8,158,709 7,166,484 3,885,568 6,500,000 6,700,000 Change in w orking capital 2,179, ,633 3,467,025 (1,756,204) (650,000) Others 3,068,984 2,618,126 2,663,578 2,810,946 3,010,946 Others / adjustments (3,073,899) (2,956,694) (5,642,793) (734,106) (3,045,923) Bank balances and cash 8,124,974 11,140,832 14,012,121 14,012,121 14,012,121 Net operating cash flow 10,336,291 13,955,130 16,524,808 14,229,972 13,257,301 Total current assets 23,621,575 24,976,993 25,270,491 28,323,067 29,173,067 Capex (6,157,233) (6,425,753) (6,222,740) (9,500,000) (9,000,000) PPE, net 52,607,328 56,276,368 62,469,127 67,247,573 71,529,571 Others (2,312,428) (6,050,574) 1,371, Prepaid lease payments 3,291,595 3,655,950 4,043,759 3,900,000 4,000,000 Net investing cash flow (8,469,661) (12,476,327) (4,851,114) (9,500,000) (9,000,000) Others 8,003,025 8,185,169 10,469,720 9,624,958 9,648,958 Total non-current assets 63,901,948 68,117,487 76,982,606 80,772,531 85,178,529 Change in debt 1,301,207 (1,599,709) (2,274,301) (1,285,425) (1,472,393) Dividends (1,854,760) (1,324,826) (1,854,756) (3,444,547) (2,784,908) Total assets 87,523,523 93,094, ,253, ,095, ,351,596 Others (945,022) (121,415) (1,526,938) - - Net financing cash flow (1,498,575) (3,045,950) (5,655,995) (4,729,972) (4,257,301) Trade payables 5,133,852 3,791,010 4,014,855 5,000,000 5,200,000 Other payables 5,705,945 6,391,519 7,188,773 7,500,000 7,500,000 Increase / Decrease in cash 156,162 3,015,858 2,871, Bank and other borrowings 2,658,427 2,934,811 2,329,168 1,000,000 1,000,000 Net cash/(debt) (15,613,087) (11,000,536) (5,904,123) (4,618,698) (3,146,305) Others 1,023,099 1,427, ,211 1,052,075 1,092,330 Total current liabilities 14,521,323 14,545,321 14,397,007 14,552,075 14,792,330 Finance Ratios Bank and other borrowings 21,079,634 19,206,557 17,587,076 17,630,819 16,158, E 2016E Others 1,119, ,843 1,041,930 1,460,348 1,458,389 Valuation Total non-current liabilities 22,199,079 20,147,400 18,629,006 19,091,167 17,616,815 PE(x) EPS grow th (%) Total liabilities 36,720,402 34,692,721 33,026,013 33,643,242 32,409,145 Yield (%) PEG (x) Shareholders' equity 48,537,540 55,763,501 65,849,976 71,688,455 77,714,800 EV/EBITDA (x) Minority interests 2,265,581 2,638,258 3,377,108 3,763,901 4,227,651 PB(x) Sources: Company data, CGIHK Research estimates Operational Revenue grow th (%) Gross margin (%) Net profit margin (%) Days receivables Days payables Days inventories Current ratio (x) Quick ratio (x) Asset/Equity (x) Net debt/equity (%) EBITDA interest coverage (x) Core ROE (%)

4 01/ / / / / / / / / / / / / / / / / / / / / / / / / / /2015 Figure 1: Quarterly Results Highlights Y/E Dec (RMB '000) Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 2015E Turnover 8,827,026 11,732,129 11,630,418 13,576,630 9,859,581 13,608,450 13,350,813 18,323,776 12,571,606 16,212,877 14,808,295 17,165,723 11,181,618 14,212,367 Gross Profit 2,325,054 3,130,712 2,632,568 4,413,325 2,431,801 4,112,466 4,380,387 7,042,306 4,439,897 5,745,593 4,364,936 5,647,983 3,240,900 3,657,222 Margin 26.3% 26.7% 22.6% 32.5% 24.7% 30.2% 32.8% 38.4% 35.3% 35.4% 29.5% 32.9% 29.0% 25.7% Operating profit 1,512,729 2,088,404 1,522,124 2,920,284 1,392,036 2,942,145 3,171,830 5,376,915 3,332,341 4,449,046 3,016,401 3,776,369 1,974,797 2,394,788 Net Profit 1,249,018 1,686,914 1,020,539 2,374, ,201 2,087,696 2,324,139 4,006,642 2,473,498 3,337,363 2,351,558 2,818,498 1,713,524 2,785,931 Adjusted net profit 1,253,775 1,683,237 1,017,661 2,338, ,546 2,219,950 2,326,707 4,012,879 2,476,458 3,337,363 2,347,664 2,791,090 1,662,015 1,786,308 YoY Change -43% -54% -67% 2% -23% 32% 129% 72% 155% 50% 1% -30% -33% -46% Sales volume ('000 tonne) 33,000 47,550 53,730 52,509 46,300 56,978 58,600 66,058 48,000 65,543 65,000 70,568 50,500 67,106 YoY Change 11.1% 15.9% 35.2% 10.8% 40.3% 19.8% 9.1% 25.8% 3.7% 15.0% 10.9% 6.8% 5.2% 2.4% ASP (Rmb/tonne) YoY Change -13.1% -24.9% -31.1% -14.1% -19.2% -4.0% 4.6% 7.3% 16.3% 5.0% -2.6% -12.0% -14.0% -14.5% Gross profit per ton Sources: Company, CGIHK Research Figure 2: Cement Prices in East China (RMB/tonne) Figure 3: Cement Prices in South Central China (RMB/tonne) East China Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec South Central China Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sources: Digital Cement, CGIHK Research Sources: Digital Cement, CGIHK Research Figure 4: Rolling Forward EV/EBITDA Range Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Figure 5: Rolling Forward PBR Range P/B trend (x) 1 Standard deviation -1 Standard deviation Average EV/EBITDA (x) Average (x) +1 Standard deviation -1 Standard deviation Sources: Bloomberg, CGIHK Research Sources: Bloomberg, CGIHK Research 4

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Explanation on Equity Ratings BUY SELL HOLD : : share price will increase by >20% within 12 months in absolute terms share price will decrease by >20% within 12 months in absolute terms : no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL Copyright Reserved No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited. China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459 Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: