In the weak environment of the market, the legend of China Resources Cement (01313)'s stock price continues to rise, and the cumulative stock price has risen by more than 80% this year, far exceeding the Hang Seng Index. The support behind it is steady growth performance and optimistic expectations.
China Resources Cement recently released its interim results, saying that the company achieved a turnover of HK$18.514 billion in the first half of the year, a year-on-year increase of 40.4%; gross profit margin increased by 9.9 percentage points year-on-year to 39.4%; the profit attributable to the company's owners was HK$4.026 billion, a year-on-year increase of 145.5%; the basic profit per share was HK$0.615, and the interim dividend per share was HK$0.275.
The rise in cement, clinker and concrete prices is the biggest factor driving the company's revenue and gross profit growth. In the first half of 2018, the company's average selling prices of cement, clinker and concrete were HK$391.4 per ton, HK$327.5 per ton and HK$423.5 per cubic meter, respectively, an increase of 32.9%, 32.0% and 14.0% respectively over the same period last year. In terms of sales volume of
, cement and concrete sales increased by 13.26% and 12.53% year-on-year respectively, but clinker sales decreased by 48.59% year-on-year. The gross profit margins of cement, clinker and concrete were 42.3%, 37.0% and 25.1%, respectively, while the gross profit margins of cement, clinker and concrete were 31.0%, 23.1% and 26.0% respectively in the same period last year. Overall, cement performs best in terms of sales or gross profit margin. During the period 0, the company's two major costs of coal and electricity rose. Due to the increase in coal prices and coal consumption, the average coal cost per ton of clinker produced by China Resources Cement increased by 15.5% year-on-year to HK$118. The average electricity cost per ton of cement increased by 4.4% to HK$33.2. If the impact of the increase in exchange rate is deducted, the electricity cost will fall by 4.2% year-on-year, mainly because some electricity consumption enjoys the discount on lowering electricity prices based on the direct power supply agreement and bidding arrangements.
The high prosperity of the cement industry is expected to continue
Zhitong Finance APP learned that China Resources Cement is just a microcosm of the high prosperity of the cement industry. In fact, not only China Resources Cement, benefiting from the rise in the average selling price of cement, the performance of other building materials and cement stocks has also performed very well. For example, Western Cement (02233)'s net profit increased by nearly twice year-on-year to RMB 650 million (the same unit below), and Asian Cement (China) (00743)'s net profit increased by 10.83 times year-on-year to RMB 959 million. After the results were announced, the stock prices of various companies rose sharply, once again becoming the target of enthusiastic embrace of market funds. Since the supply-side reform and environmental protection production restrictions were implemented, the cement industry's production capacity has been greatly reduced, but downstream infrastructure demand has been strong, so there has been a situation where off-season is not slow. Cement prices have generally been at a relatively high level since the end of last year. Even in the first quarter of the traditional off-season, prices fell significantly, but they were still far higher than the same period in history. Prices continued to rise in the second quarter, driving a significant increase in industry efficiency. Data shows that from January to May 2018, the cement industry achieved a cumulative profit of 51.49 billion yuan, a year-on-year increase of 164%, at the highest level in history.
For the second half of the year, the market still gives the cement industry a high profit expectation. The main logic is that demand is supported by infrastructure and real estate investment, and supply continues to be limited.
Among the three major coaches driving economic growth, exports encountered difficulties due to trade frictions, so investment and domestic demand were once again placed high hopes. Recently, the Political Bureau of the CPC Central Committee said, "Making filling in the gaps is a key task for deepening supply-side structural reform at present, and increasing efforts to make up for the gaps in the infrastructure field." Guangdong, Zhejiang, Qinghai and other places have subsequently released plans for major infrastructure investment projects such as highways and high-speed railways, which can be seen in the driving force for expanding investment to promote economic growth.
It is worth mentioning that according to the industry statistics of the excavator branch of the China Engineering Machinery Industry Association, the 25 host manufacturing companies included in the statistics from January to July 2018 sold a total of 131,246 excavator products of various types, an increase of 58.7% year-on-year. The sales volume in July far exceeded the previous highest in 2011, and was the highest in July in history.
Some experts said that the sharp increase in excavator sales has been affected to a certain extent by the accelerated infrastructure investment. Judging from the recent statements of various provinces and cities, the signal of acceleration of infrastructure investment in the second half of the year is clear. Huizheng pointed out that construction companies have recently found it easier to obtain funds than before, and the bank estimates that the government will introduce more measures to support infrastructure projects in the second half of the year.
China Resources Cement remains optimistic in the medium and long term
Regarding the future outlook, China Resources Cement Management stated at the performance meeting that short-term demand will be affected by the rainy season, but volume and price should rise in the fourth quarter. However, due to the large base last year, the growth rate may slow down relatively. Demand in Guangdong and Guangxi is expected to grow by about 5% year-on-year.
Real estate regulation policies are still strict, and the market is worried that cement demand will fall accordingly. However, China Resources Cement believes that regulation mainly depends on suppressing housing prices, and in terms of sales, newly started area, and land purchase area, demand is still relatively stable. The data released by the Bureau of Statistics seems to confirm this. From January to July, national real estate development investment increased by 10.2% year-on-year, significantly higher than the year-on-year growth rate of 9.7% in the first six months.
Management management is optimistic about the South China market in the next two years, mainly based on the Greater Bay Area planning and the launch of many key infrastructure projects will boost cement demand.
The core area of China Resources Cement is in Guangdong. Its demand has been better or synchronized with the national average in most of the past, and the average price of high-grade cement tons is also 29.5 yuan higher than the national average. With the implementation of transportation infrastructure projects in the Greater Bay Area, Guangdong's demand is expected to continue to exceed the national level in the future.
In addition, industry leaders such as China Resources Cement have recently ushered in another positive news - the Ministry of Industry and Information Technology and the Development and Reform Commission recently issued a notice that provincial-level authorities in all regions should effectively prohibit the addition of new cement and flat glass production capacity. For cement clinker and flat glass construction projects that are really necessary to build, equal or reduced replacement must be implemented, and a capacity replacement plan must be held announced by the local provincial industrial and information technology authorities.
After more than two years of capacity reduction, the concentration of the cement industry has increased significantly, but there is still a lot of room for improvement. Taking Guangdong as an example, China Resources Cement has the largest market share, with a market share of 18%, Conch Cement, ranked second, is 15%, Taiwan clay, Tapai, and China Materials Co., Ltd. account for 28%, and others account for 39%. The continued advancement of production restrictions will undoubtedly accelerate the trend of rising market concentration, and China Resources Cement, as the leader, is expected to gain more market share.
In addition to the cement business, China Resources Cement is also trying to develop new businesses and regard prefabricated construction business as one of the group's key businesses in the future. At the end of June, the company raised a net increase of HK$4.1 billion due to the old-for-new share allocation, and the net amount of funds raised was planned to be used to develop prefabricated construction and aggregate businesses.
It is understood that in May before the share allotment, China Resources Cement and Shenzhen Huayang International Engineering Design Co., Ltd. established a joint venture - Dongguan Runyang United Intelligent Manufacturing Co., Ltd. in Guangdong, with the group holding 49% of the equity. The joint venture's prefabricated concrete components are designed with an annual production capacity of about 40,000 cubic meters.
Company also acquired the industrial land for the production of prefabricated building components in Nanning, Guangxi in May, with the land area accounting for 55% of the total planned land area of the project. The factory is expected to start construction in the first half of 2019, just like the building prefabricated building components factory in Zhanjiang, Guangdong, , Zhanjiang, .
Overall, China Resources Cement's performance growth has been confirmed to be high, with stable dividends over the years, but its dynamic price-to-earnings ratio is only about 10 times, lower than those of companies in the same industry such as Conch Cement (00914), Jinyu Group (02009), and China Building Materials (03323). The valuation is attractive. After the education, technology and other sectors are "out of power", China Resources Cement may be a good optional target.
