China Cement Weekly March 30, 2015 A Common Theme in Results Briefings: More Equity Stake Acquisition Among the Players in 2015 China Cement Sector Cement prices drop 0.59% last week. Average cement price (nationwide) was down 0.59% week-on-week to RMB291.7/tonne. Cement prices in Nanjing, Changsha, Nanning, and Chengdu were down RMB10~30/tonne. Average inventory level (nation-wide) was largely flat at.18% last week. Daily shipment of bagged cement gradually recovered while that of bulk cement still kept at ~% of normal level. Daily shipment in Beijing region was affected by the inspection of Olympic Winter Games Bid Committee. Coal prices continued to drop last week. Comprehensive average price index for Bohai- Rim Steam Coal (Q5K) dropped RMB9/tonne last week to RMB473/tonne. The index was 11.1% lower on year-on-year (YoY) basis. Equity stake acquisition may find its way. During the annual results briefing of CNBM [3323.HK; BUY], management guided 2015 capex of about RMB13bn, a portion of which will be used for acquiring equity stake of other players to facilitate regional cooperation. They also expected a growing trend of more strategic alliance among large players through secondary market under the new normal. Meanwhile, management of Anhui Conch [0914.HK; HOLD] also mentioned during the annual briefing that it would pay attention to the cooperation among large industry peers in 2015, while the company has already held 16.28%/19.84%/28.17% of stakes in Chaodong Cement [0318.CH; NR]/Jidong Cement [000401.CH; NR]/Xinjiang Qingsong Building [0425.CH; NR]. For some regional players with meaningful market share and stocks trading at a significant discount to book value, they are more appealing for equity stake acquisition in secondary market. We reiterate that investors may keep an eye on West China Cement [2233.HK; NR], whose 2014 PBR is 0.7x based on market consensus and TCCI [1136.HK; NR], at 0.48x 2014 PBR. Cement stocks under our coverage down 0.2% last week. The best performer was Anhui Conch [0914.HK; HOLD], up 3.1%. Shanshui Cement [0691.HK; SELL] was the weakest one, down 1.2%. Nevin Ning Analyst (852) 3698-6321 nevinning@chinastock.com.hk Wong Chi Man Head of Research (852) 3698-6317 cmwong@chinastock.com.hk Valuation Table Sources: Company, Bloomberg, CGIHK Research estimates PER (x) PBR (x) EV/EBITDA(x) Net debt/equity (%) Company Ticker Rating Price (HK$) Market cap (US$m) 2013 2014E 2015E 2013 2014E 2015E 2013 2014E 2015E 2014E Anhui Conch 914 HK Equity HOLD 28. 18,767 12.6 10.9 13.8 2.1 1.8 1.7 7.6 6.9 7.7 9 CNBM 3323 HK Equity BUY 7.51 5,198 5.6 5.8 5.8 0.9 0.8 0.7 8.2 7.4 7.6 249 BBMG 9 HK Equity BUY 6.54 7,104 7.5 12.7 10.6 0.9 0.8 0.8 8.0 8.0 7.7 46 CR Cement 1313 HK Equity HOLD 4.31 3,610 8.6 6.6 7.8 1.1 1.0 0.9 7.0 5.6 6.1 56 Shanshui Cement 691 HK Equity SELL 5. 2,491 12.9 34.0 37.4 1.7 1.4 1.4 8.5 9.8 9.4 131 Simple average 9.5 14.0 15.1 1.4 1.2 1.1 7.9 7.5 7.7 98 Weighted average 10.3 11.6 13.1 1.6 1.4 1.3 7.8 7.2 7.7 62 EPS Growth (%) 2013-2015E PEG(x) ROE (%) Dividend yield (%) Company Ticker 2014E 2015E CAGR (%) 2014E 2013 2014E 2015E 2013 2014E 2015E Anhui Conch 914 HK Equity 15.2 (19.9) (3.9) (2.8) 18.2 18.0 12.8 1.5 2.9 1.4 CNBM 3323 HK Equity (5.0) (2.3) (3.7) (1.6) 17.5 14.4 12.5 2.7 2.8 2.6 CR Cement 1313 HK Equity 31.3 (15.8) 5.1 1.3 14.1 16.2 12.3 2.4 3.9 3.2 BBMG 9 HK Equity (41.1) 21.4 (15.5) (0.8) 12.0 6.8 7.3 1.9 1.2 1.2 Shanshui Cement 691 HK Equity (62.3) (7.6) (41.0) (0.8) 11.1 4.5 3.8 1.6 0.6 0.5 Simple average (12.4) (4.9) (11.8) (0.9) 14.6 12.0 9.7 2.0 2.3 1.8 Weighted average (2.0) (8.4) (7.7) (1.7) 16.1 14.3 11.1 1.9 2.5 1.7 1
1-Year Relative Performance Sources: Capital IQ, CGIHK Research 2
Figure 1: Regional Cement Price National Average (P.O. 42.5) North China 430 Northeast China 5 East China South Central China 430 Southwest China Northwest China 430 3
Figure 2: Cement Prices in Major Cities (1) Beijing 5 Tianjing 430 Shijiazhuang, Hebei Taiyuan, Shanxi Hohhot, Inner Mongolia 3 3 340 320 2 2 240 220 Shenyang, Liaoning Changchun, Jilin Harbin, Heilongjiang 4
Figure 3: Cement Prices in Major Cities (2) Shanghai 0 5 Nanjing, Jiangsu 5 Hangzhou, Zhejiang Hefei, Anhui 5 Fuzhou, Fujian Nanchang, Jiangxi Jinan, Shandong Zhengzhou, Henan 5
Figure 4: Cement Prices in Major Cities (3) Wuhan, Hubei Changsha, Hunan Guangzhou, Guangdong Nanning, Guangxi Haikou, Hainan 5 Chengdu, Sichuan Chongqing 3 3 340 320 2 2 240 220 Guiyang, Guizhou 430 6
Figure 5: Cement Prices in Major Cities (4) Kunming, Yunnan Xi'an, Shaanxi 230 490 440 340 Lanzhou, Gansu Xining, Qinghai 240 Yinchuan, Ningxia Ü rümchi, Xinjiang 0 5 7
Figure 6: Cement Prices (March 27) (RMB/Tonne) 8
9 Figure 7: Cement Inventory Level (%) National Average 85 North China 85 90 Northeast China East China South Central China 85 Southwest China 85 Northwest China
Figure 8: Clinker Capacity Breakdown by Region (2014) Anhui Conch CNBM CR Cement Shanshui BBMG TCCI Asia Cement WCC Sinoma Group Jidong Huaxin 0914.HK 3323.HK 1313.HK 0691.HK 9.HK 1136.HK 0743.HK 2233.HK 000401.CH 01.CH East China Anhui 39.3% 5.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.3% 0.0% 0.0% Fujian 0.0% 1.0% 11.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Jiangsu 2.1% 6.1% 0.0% 0.0% 0.0% 8.7% 0.0% 0.0% 6.1% 0.0% 0.0% Jiangxi 2.6% 5.6% 0.0% 0.0% 0.0% 0.0% 43.0% 0.0% 2.6% 0.0% 0.0% Shandong 0.9% 11.4% 0.0% 53.7% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2% 0.0% Zhejiang 1.7% 13.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Shanghai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 46.6% 42.4% 11.9% 53.7% 0.0% 8.7% 43.0% 0.0% 14.0% 3.2% 0.0% South Central China Guangdong 6.2% 0.0% 22.5% 0.0% 0.0% 26.6% 0.0% 0.0% 7.9% 0.0% 3.5% Guangxi 8.8% 1.5% 42.8% 0.0% 0.0% 16.4% 0.0% 0.0% 0.0% 0.0% 0.0% Hainan 0.0% 0.0% 5.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Hunan 10.8% 7.4% 0.0% 0.0% 0.0% 5.9% 0.0% 0.0% 4.4% 2.2% 16.5% Hubei 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 23.3% 0.0% 0.0% 0.0% 56.5% Henan 0.0% 5.5% 0.0% 2.4% 4.8% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% Total 25.7% 14.4%.9% 2.4% 4.8% 49.0% 23.3% 0.0% 12.3% 2.2%.0% North China Beijing 0.0% 0.0% 0.0% 0.0% 15.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Tianjin 0.0% 0.0% 0.0% 0.0% 4.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Hebei 0.0% 1.0% 0.0% 0.0% 61.5% 0.0% 0.0% 0.0% 0.0% 39.4% 0.0% Shanxi 0.0% 0.8% 7.9% 15.9% 11.6% 0.0% 0.0% 0.0% 0.0% 11.1% 0.0% Inner Mongolia 0.0% 3.5% 0.0% 9.4% 0.0% 0.0% 0.0% 0.0% 5.3% 10.3% 0.0% Total 0.0% 5.3% 7.9% 25.3% 92.9% 0.0% 0.0% 0.0% 5.3%.8% 0.0% Northeast China Heilongjiang 0.0% 4.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Jilin 0.0% 0.8% 0.0% 0.0% 2.4% 0.0% 0.0% 0.0% 0.0% 5.4% 0.0% Liaoning 0.0% 2.3% 0.0% 15.8% 0.0% 3.4% 0.0% 0.0% 0.0% 3.1% 0.0% Total 0.0% 7.3% 0.0% 15.8% 2.4% 3.4% 0.0% 0.0% 0.0% 8.5% 0.0% Southwest China Chongqing 2.6% 3.7% 0.0% 0.0% 0.0% 6.8% 0.0% 0.0% 0.0% 7.2% 3.5% Sichuan 4.8% 13.4% 0.0% 0.0% 0.0% 10.2% 33.7% 0.0% 0.0% 0.0% 6.7% Guizhou 7.9% 7.2% 2.6% 0.0% 0.0% 12.3% 0.0% 4.4% 0.0% 0.0% 0.0% Yunnan 3.3% 6.3% 6.6% 0.0% 0.0% 9.6% 0.0% 0.0% 0.0% 0.0% 7.7% Tibet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.1% Total 18.6% 30.6% 9.3% 0.0% 0.0% 38.9% 33.7% 4.4% 0.0% 7.2% 20.0% Northwest China Gansu 3.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 25.2% 0.0% 0.0% Shaanxi 5.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 78.8% 1.8% 18.1% 0.0% Qinghai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% 0.0% 0.0% Ningxia 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9.4% 0.0% 0.0% Xinjiang 0.4% 0.0% 0.0% 2.7% 0.0% 0.0% 0.0% 16.8% 28.6% 0.0% 0.0% Total 9.1% 0.0% 0.0% 2.7% 0.0% 0.0% 0.0% 95.6% 68.4% 18.1% 0.0% Grand Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Note: The largest regional exposure of each company is highlighted in yellow. Sources: Digital Cement, China Cement Association, CGIHK Research 10
Figure 9: Market Share in Terms of Clinker Capacity (2014) 2014 Anhui Conch CNBM CR Cement Shanshui BBMG TCCI Asia Cement WCC Sinoma Group Jidong Huaxin 0914.HK 3323.HK 1313.HK 0691.HK 9.HK 1136.HK 0743.HK 2233.HK 000401.CH 01.CH East China Anhui 51.7% 11.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.4% 0.0% 0.0% Fujian 0.0% 6.2% 13.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Jiangsu 5.3% 26.5% 0.0% 0.0% 0.0% 5.6% 0.0% 0.0% 7.7% 0.0% 0.0% Jiangxi 7.3% 26.9% 0.0% 0.0% 0.0% 0.0% 14.1% 0.0% 3.7% 0.0% 0.0% Shandong 1.4% 32.0% 0.0% 28.3% 0.0% 0.0% 0.0% 0.0% 0.0% 2.1% 0.0% Zhejiang 4.3%.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Shanghai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 16.6% 25.7% 1.4% 6.1% 0.0% 0.8% 1.8% 0.0% 2.5% 0.4% 0.0% South Central China Guangdong 13.2% 0.0% 15.8% 0.0% 0.0% 14.5% 0.0% 0.0% 8.4% 0.0% 1.9% Guangxi 23.1% 6.9% 37.0% 0.0% 0.0% 11.0% 0.0% 0.0% 0.0% 0.0% 0.0% Hainan 0.0% 0.0% 23.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Hunan 26.1% 30.0% 0.0% 0.0% 0.0% 3.6% 0.0% 0.0% 5.2% 2.1% 9.8% Hubei 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7.9% 0.0% 0.0% 0.0% 40.6% Henan 0.0% 17.2% 0.0% 1.4% 1.6% 0.0% 0.0% 0.0% 0.0% 0.0% 1.6% Total 11.6% 11.0% 10.5% 0.4% 0.4% 5.6% 1.2% 0.0% 2.7% 0.4% 8.9% North China Beijing 0.0% 0.0% 0.0% 0.0% 87.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Tianjin 0.0% 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Hebei 0.0% 3.2% 0.0% 0.0% 22.1% 0.0% 0.0% 0.0% 0.0% 30.4% 0.0% Shanxi 0.0% 3.7% 7.3% 14.3% 6.0% 0.0% 0.0% 0.0% 0.0% 12.3% 0.0% Inner Mongolia 0.0% 16.1% 0.0% 8.0% 0.0% 0.0% 0.0% 0.0% 7.0% 10.9% 0.0% Total 0.0% 7.0% 2.0% 6.3% 13.3% 0.0% 0.0% 0.0% 2.0% 18.7% 0.0% Northeast China Heilongjiang 0.0% 57.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Jilin 0.0% 8.5% 0.0% 0.0% 2.8% 0.0% 0.0% 0.0% 0.0% 13.8% 0.0% Liaoning 0.0% 14.4% 0.0% 19.0% 0.0% 3.3% 0.0% 0.0% 0.0% 4.6% 0.0% Total 0.0% 22.7% 0.0% 9.3% 0.8% 1.6% 0.0% 0.0% 0.0% 6.1% 0.0% Southwest China Chongqing 8.4% 20.4% 0.0% 0.0% 0.0% 5.6% 0.0% 0.0% 0.0% 9.2% 2.8% Sichuan 7.7% 36.6% 0.0% 0.0% 0.0% 4.2% 6.3% 0.0% 0.0% 0.0% 2.6% Guizhou 17.3% 26.6% 1.9% 0.0% 0.0% 6.8% 0.0% 0.9% 0.0% 0.0% 0.0% Yunnan 6.6% 21.4% 4.3% 0.0% 0.0% 4.9% 0.0% 0.0% 0.0% 0.0% 3.8% Tibet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 27.3% Total 9.7% 27.2% 1.6% 0.0% 0.0% 5.2% 2.1% 0.2% 0.0% 1.5% 2.6% Northwest China Gansu 14.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 58.3% 0.0% 0.0% Shaanxi 17.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 23.3% 2.6% 21.5% 0.0% Qinghai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 20.7% 0.0% 0.0% Ningxia 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 40.5% 0.0% 0.0% Xinjiang 1.0% 0.0% 0.0% 2.0% 0.0% 0.0% 0.0% 3.8% 32.8% 0.0% 0.0% Total 7.8% 0.0% 0.0% 0.7% 0.0% 0.0% 0.0% 8.0% 28.8% 6.1% 0.0% Grand Total 10.1% 17.1% 3.3% 3.2% 1.8% 2.6% 1.2% 1.0% 5.0% 4.0% 2.5% Note: Market leader in each province is highlighted in yellow. Market leader is each region in highlighted in red. Sources: Digital Cement, China Cement Association, CGIHK Research 11
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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 1-7, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: 3698-6888. 12