Zhitong Finance APP learned that Galaxy International released its latest research report stating that since the beginning of the year, the share price of the China cement sector has risen by 51%, but it still lags behind cyclical industries such as steel, non-ferrous metals and paper. The cement sector underperformed during the period mainly because the unfavorable weather in summer restricted the rise in cement prices (only roughly the same during the period).
There have been preliminary signs of a rebound in cement prices in the past few weeks, and Galaxy International expects prices to continue to rise in the short term, especially in East China and South China during the peak period of construction activities, which is expected to become an important stock price catalyst. I am optimistic about China Resources Cement (01313), and the potential upward space for the shares is about 25%. The company's profit forecast released yesterday, as well as the short suspension of production of the mud international Yingde factory, may all become important positive factors.
Cement sector is relatively backward, and the environmental inspection has had a significant impact. From the beginning of 00 to the present, steel, non-ferrous metals and paper industries have recorded an increase of 76%-102%. Although the performance of the cement sector in the first half of the year is roughly similar to that of the above sectors, differences have begun to occur since August. The cement sector has increased by only 51% year-to-date. The cement sector was relatively weak during the period, mainly due to the mild decline in cement prices due to unfavorable weather in summer.
The agency mentioned that the latest round of environmental protection inspections is not just a symbolic action. As an important part of supply-side reform, the state has implemented environmental protection inspections and prompted some factories to shut down production, which not only stimulated paper and steel prices, but also saw product prices rising in some industries that have been oversupply in the past (such as PVC, whose prices have risen 26% since mid-June). Therefore, it is expected that as the cement industry enters the peak season in the next few weeks, terminal demand will rebound, and the impact of environmental protection inspections on the industry will be more obvious.
Cement prices rose in peak season. East China and South China are more likely to benefit
. All provinces have released the clinker production data for the first seven months of 2017. If the data is divided by the annual capacity of each district, the resulting ratio can be used as a reference for capacity utilization. The ratios in South China and East China are still the highest, at 57.5% and 49.7%, respectively, reflecting that the overcapacity problem in these two regions is relatively small and can benefit from the price increase brought about by the peak construction activity in the end of the third and fourth quarters. The main beneficiaries will be China Resources Cement and Conch Cement (00914).
It is worth noting that China Resources Cement has more than 80% of the clinker production capacity in these two areas, while Conch Cement is about 60%. Compared with the past few years, the current inventory levels in these areas are lower, which is believed to help support the cement prices in the areas.
raises the earnings of each stock in cement. The first choice is China Resources Cement
. In terms of China Resources Cement, Galaxy International raised its gross profit forecast for 2017/2018 tonnes by HK$2/4, and its earnings per share forecast also increased by 3.9%/8.9%. And moved the benchmark year to 2018, with the target price-to-book ratio increased from 1.25 times to 1.3 times, and the target price was also raised from HK$5.45 to HK$6.06.
Conch Cement, after the institution raised its gross profit forecast for 2017/2018 by 2 yuan/3 yuan, its earnings per share forecast increased by 3%/5.3%. The target price has been raised from HK$31.9 to HK$35.6, based on a 1.7x price-to-book ratio in 2018 (previously 1.6x).
China Building Materials (03323), after raising its gross profit forecast for 2017/2018 for 3 yuan/3 yuan, its earnings per share forecast also increased by 11%/13%. China Building Materials' profit forecast has the highest increase, mainly because the company has a high operating leverage . The target price was raised from HK$5.20 to HK$6.16, based on a 0.62-fold price-to-book ratio in 2018 (previously 0.55 times). Galaxy International's target price and profit forecast for Jinyu Co., Ltd. (02009) remain unchanged.
China Resources Cement's current 2018 price-to-earnings ratio is 8.7 times, still the lowest among cement stocks covered by the institution. 's price-to-book ratio in 2018 was 1.04 times, a discount of 33% compared to Conch Cement. Yingxi released by the company yesterday (profits increased significantly in the first nine months of 2017), as well as the temporary suspension of production of Taini International Yingde factory (the factory accounts for about 8% of Guangdong's clinker production capacity), should be the company's two major positive factors in the near future.
The agency gave Conch Cement a target price, and the potential upside potential of shares is 10%. The room for further uptrend will depend on its dividend payment policy in a net cash state.If the company raises its dividend yield ratio from 30% to 45%, its 2018 dividend yield will rise to 4.2%. As for China Building Materials, although the company's extremely high operating leverage may attract investors with high risk appetite, the company's quarterly performance fluctuations are still worth paying attention to. As for Jinyu Co., Ltd., unless the state issues a major announcement on the detailed development plan of in Xiongan New Area, the company's profit growth potential may be limited due to the sharp drop in the company's winter (starting in mid-November).
