外文报告：CCBI-China Cement Sector Update 17 October 2012：Winter is coming-121017

China/Hong Kong
Cement




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China Cement Sector Update
17 October 2012
Winter is coming
 Cement prices rose in September, but winter is
coming. China’s cement market has been gathering
strength over the past six weeks and prices have been
rising all over the country. But beware: we believe the
market has already priced in a recovery in 4Q12 and,
more ominously, the late-November-to-February winter
low season for China’s cement sector is just around the
corner. If history is any guide, we can expect cement
stock prices to correct by up to 20% during this time. And
given the sector rose 20-30% in September alone, we
would not be surprised to see a frenzy of profit taking in
the weeks ahead.
 The north wind doth blow. Not surprisingly, it is China’s
northern provinces that will bear the brunt of the winter
low season. Greater infrastructure investment will
support cement prices in November and December, but
mainly in the southern and central provinces where we
expect a 5-10% rise in cement price in 4Q12. The north
and the west will see a dramatic slowdown in construction
activity in November, causing prices to decline.
 Expect a weak 3Q12; downward earnings revisions
in 2012F. Along with the rest of the street, we expect
Anhui Conch (914 HK, Not Rated) and CNBM (3323 HK,
Neutral) to report weak 3Q12 results due to ASP cuts
stemming from competition within the sector and sales
volume declines in July-August. We look for a recovery
in the gross margins of China’s major cement players in
4Q12 – from the dip in 3Q12 back to the levels last seen
in 1H12. CNBM and CR Cement (1313 HK,
Underperform) had an extremely weak 3Q12 and so we
lower our ASP and earnings forecasts for both.
 4Q12 margin recovery fully priced in. Given the
consensus forecast for a 38% YoY average earnings
decline for China’s cement sector in 2012F, the sector’s
current valuation of 10.4x 2012F P/E and 8.1x 2013F
P/E can not be considered cheap in our view. We
maintain our Neutral rating on CNBM; however, based
on a slightly more promising 4Q12F and 2013F earnings
outlook for the company, we raise the target price from
HK$7.60 to HK$9.30. Meanwhile, we downgrade
CR Cement from Neutral to Underperform as we think its
valuation is expensive. Our rating on West China
Cement (2233 HK) changes from Outperform to Neutral
as the stock price shot up 12% over the past month and
is now approaching our HK$1.40 target price.
Valuation summary of cement companies
Stock 2012F
Company code Rating* P/E (x) P/B (x) EPS growth (%)
Anhui Conch 914 HK NR 17.5 2.2 (45.7)
CNBM 3323 HK N 8.4 1.2 (43.9)
CR Cement 1313 HK U 16.3 1.4 (55.8)
BBMG 2009 HK NR 6.5 0.9 (8.1)
Shanshui Cement 691 HK NR 8.5 1.4 (34.1)
TCC 1136 HK NR 9.1 0.4 (54.4)
Asia Cement China 743 HK NR 10.8 0.5 (71.0)
West China Cement 2233 HK N 9.6 1.0 (27.0)
Sinoma 1893 HK NR 9.3 0.6 (51.8)
* CCBIS ratings: O = Outperform; N = Neutral; U = Underperform;
N = Not Rated
Source: Bloomberg, CCBIS estimates
China monthly cement output growth
0
20
40
60
80
100
120
140
160
180
200
220
O
c
t
-
0
7
D
e
c
-
0
7
F
e
b
-
0
8
A
p
r
-
0
8
J
u
n
-
0
8
A
u
g
-
0
8
O
c
t
-
0
8
D
e
c
-
0
8
F
e
b
-
0
9
A
p
r
-
0
9
J
u
n
-
0
9
A
u
g
-
0
9
O
c
t
-
0
9
D
e
c
-
0
9
F
e
b
-
1
0
A
p
r
-
1
0
J
u
n
-
1
0
A
u
g
-
1
0
O
c
t
-
1
0
D
e
c
-
1
0
F
e
b
-
1
1
A
p
r
-
1
1
J
u
n
-
1
1
A
u
g
-
1
1
O
c
t
-
1
1
D
e
c
-
1
1
F
e
b
-
1
2
A
p
r
-
1
2
J
u
n
-
1
2
A
u
g
-
1
2
m tonne
(7)%
(2)%
3%
8%
13%
18%
23%
28%
Cement production (LHS) YoY growth (RHS)

Source: Digital Cement, CCBIS
CCBIS rating and target price changes for cement
stocks under coverage
Stock Target price (HK$) Upside
Company code Rating* Last price Update (%)
CNBM 3323 HK Neutral 7.60 9.30 7.30
CR Cement 1313 HK Downgrade to
Underperform
3.50 3.50 (24.40)
West China
Cement
2233 HK Downgrade to
Neutral
1.40 1.40 3.70
Source: CCBIS estimates
Dr. Eliza Liu Sara Song
(8610) 6652 2822 (8610) 6652 2833
liuhongke@http://wendang.chazidian.com sarasong@http://wendang.chazidian.com

Timothy Sun
(852) 2533 6746
timothysun@http://wendang.chazidian.com