NEWS CENTER

Building Materials Cement Industry 2012 Annual Strategy: Integration Promotion, Performance Differentiation


Release time:

Jan 04,2012

Investment tips: In 2012, the supply and demand of the cement industry were basically balanced. From 2010 to 2011, the fixed asset investment in the cement industry increased by 3% and-12% respectively. It is expected that the fixed asset investment in the cement industry will continue to decline by 15% and 10% respectively in 2012 and 2013. It is estimated that in 2012, cement demand will increase by 6% (optimistic up to 8.1), effective production capacity will increase by 4.7 (60 million tons of backward production capacity will be eliminated), supply will increase by 5.8, and supply and demand will be basically balanced. In 2013, cement demand is expected to increase by 5.5 and effective production capacity by 3.1 (backward production capacity elimination 300

Investment tips: In 2012, the supply and demand of the cement industry were basically balanced. From 2010 to 2011, the fixed asset investment in the cement industry increased by 3% and-12% respectively. It is expected that the fixed asset investment in the cement industry will continue to decline by 15% and 10% respectively in 2012 and 2013. It is estimated that in 2012, cement demand will increase by 6% (optimistic up to 8.1), effective production capacity will increase by 4.7 (60 million tons of backward production capacity will be eliminated), supply will increase by 5.8, and supply and demand will be basically balanced. In 2013, it is expected that cement demand will increase by 5.5, effective production capacity will increase by 3.1 (30 million tons of backward production capacity will be eliminated), and supply will increase by 4.8, resulting in a supply gap. In 2012, the business climate of the cement industry was low before and high after. In the first half of the year, with the macro-economic growth and the decline of fixed asset investment growth, the growth rate of cement demand will also periodically bottom out, which is expected to be 4-6%. In the second half of the year, with the policy adjustment starting from October 2011 gradually pulling the real economy, cement demand will pick up in the second half of 2012, and the year-on-year growth rate is expected to rise to 6-8%.

In the first half of this year, the year-on-year growth prospects for prices and profitability are not optimistic, and the second half of the year is expected to achieve positive growth.

The supply and demand situation in Northeast, North and South China is improving, with high concentration in East China and Central China and stable market synergy. According to our statistics on the new production lines in each region last year and this year and the prediction of demand in each region, it is expected that the supply and demand in the three major regions of Northeast (Heijiliao), North China (Beijing-Tianjin-Hebei) and South China (Guangdong, Guangxi and Fujian) will improve more obviously this year. Prices are expected to rise by 8% in the northeast region and 2-3% in north and south China. Prices in East China will fall by 3-5% year-on-year, and in Northwest China by 5-10% year-on-year.

In 2011, the market coordination of leading enterprises in East China and Central China achieved initial success in continuously enhancing trust and running-in. It is expected that in 2012, facing the challenge of increasing demand uncertainty, the market coordination of leading enterprises in East and Central China will be more effective.

The market share of the top ten cement groups will reach 48% in 2012. By the end of 2011, the market share of the top ten cement groups in China's cement industry has reached 41% of the production capacity. It is estimated that by the end of 2012, the market share of the top ten groups will reach 48% of the production capacity, and the market share of the top three groups will reach 29%. In 2012, about 0.1 billion tons of production capacity will be integrated by large enterprise groups. It is estimated that by the end of 2015, the market share of the top ten groups covering production capacity will reach 62%, and the top three market share will reach 34%.

Investment advice: the first half of the policy, the second half of the performance. In the short term, the stock price has entered the relative return range due to the large loss of cement stocks in the early period, which has basically released the strong cyclical risk. As economic growth continues to slow in the first quarter and inflation continues to decline, monetary and fiscal policies are expected to be more active, improving the market's pessimistic expectations for investment in infrastructure and real estate, and cement stocks are expected to get a round of valuation repair in the first half of this year. The current share price corresponds to the 2012 A- share and H-share P/E valuation centers of 8.9x and 5.7x, and we believe that the 2012 A- share and H-share reasonable valuation centers are 10x and 7x, respectively. In the second half of the year, especially in the fourth quarter, with economic growth and the rebound in cement demand, coupled with reduced cement supply, cement prices are trending upward, and the market's profit forecast for 2013 may be revised upward. Stocks that cover the Northeast, North and South China regions with large margins of profitability and strong certainty of performance growth are preferred. A shares recommend Jidong Cement, H shares recommend China Resources Cement and China Building Materials. In addition, A- shares focus on Conch Cement and Huaxin Cement, and H-shares focus on Conch Cement and Asia Cement. Among the stocks we do not cover, A- share Yatai Group (the largest cement enterprise in Northeast China), Fujian Cement (the largest cement enterprise in Fujian), Tower Group (the largest enterprise in eastern Guangdong) and Jinyu shares (the largest enterprise in Beijing, Tianjin and Hebei) deserve attention, and H-share Shanshui Cement and Jinyu shares deserve attention.

1) China Resources Cement (1313.HK): First coverage gives rating BUY, target price HK$8.5. Expected earnings per share for 2011-2013 are HK$0.6/0.8/0.95 yuan. China Resources Cement covers the South China market, 2012 in sales growth led by greater certainty of performance growth; 2) Yandong Cement (000401.CH): Recommended. It is estimated that the earnings per share for 2011-2013 will be 1.38 yuan/1.57 yuan/1.9 yuan respectively. Jidong Cement covers the northeast region and has greater certainty of performance growth in 2012 driven by sales growth. 3) China Building Materials (3323.HK): Recommended, target price HK$12.6. Earnings per share for 2011-2013 are expected to be Rmb1.44 yuan/1.74 yuan/2.12 yuan respectively. China Building Materials covers the northeast region, its performance in 2012 can maintain steady growth, and its A- share listing in the second half of the year will reduce its debt ratio to obtain revaluation. 4) Conch Cement (600585.CH/ 914.HK): Reduce 2012 earnings per share by 16% to 2.15 yuan, and expect 2013 earnings per share to be 2.48 yuan. Cut H-share target price to HK$30. Conch A- share price long-term bottom attraction has been greater.

Risks: Prices fell more than expected in the first quarter of this year; the pace of macro policy liberalization was lower than expected; and economic growth slowed more than expected this year.