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1、Buy,Buy,Buy,Buy,Buy,Hold,Hold,HKD4.45,HKD2.50,Deutsche BankMarkets Research,AsiaChinaResourcesMetals&Mining,IndustryChina CementSector,Date3 October 2012RecommendationChangeJames KanJohnson Wan,Taking a look at cement demand,Research Analyst(+852)2203 6163,Research Analyst(+852)2203 6146,ahead of 4Q
2、Dont get too excited about a 4Q recovery;be selective and Buy South ChinaWe have seen cement prices stabilizing nationwide ahead of the peak season,but we believe it is still too early to overweight the China cement sector.Weanalyzed leading indicators such as property construction starts and medium
3、to long-term financing for infrastructure projects and conclude that therecovery in 4Q looks weak.We recommend staying selective as South Chinahas the best momentum headed into 4Q with strong demand improvementand the lowest inventory levels in China.Our top pick is currently CR Cement.August cement
4、 volumes show minor improvement driven by South ChinaCement demand was weak this summer even though there was a marginalimprovement in August cement volumes,up 2%MoM.Compared to theaverage monthly volumes of 203mt in 2Q,August volumes of 195mt were still,Top picksCR Cement(1313.HK),HKD4.51Companies
5、FeaturedCR Cement(1313.HK),HKD4.51BBMG(2009.HK),HKD5.94CNBM(3323.HK),HKD8.57West China Cement(2233.HK),HKD1.36Sinoma(1893.HK),HKD2.18Anhui Conch Cement(0914.HK),HKD24.15 HoldChina Shanshui Cement(0691.HK),HKD5.05,4%below the levels seen in 2Q.The only region that saw a pickup was inSouth China,up 11
6、%MoM in August.Inventory levels as a result have alsodeclined to 62%of storage capacity,the lowest in the nation.Since the end ofAugust,there have already been price hikes of 27%or RMB75/t in the South.,Whats changed?Stock FY12e/13e,earningschanges,TargetPrice,Rating,Improvement in property sales bu
7、t slow recovery in construction startsDespite improving property sales(GFA sold improved from-14%YoY inFebruary to-4%YoY in August),cash flow for most developers remains tightand the appetite to purchase land and increase construction starts is still weak.Commodity property GFA starts,a leading indi
8、cator of construction activity,are at-7%YoY in August versus an average of 23%YoY growth in 2011.Theland acquisition area,a proxy for cash flow of developers,was at-16%YoY in,CNBMShanshui,-10%/-From Maintain20%HKD10.81 BUYtoHKD9.763%/-25%From MaintainHKD4.76 HOLDto,August versus an average of 19%YoY
9、 growth in 2011.Tight medium-to long-term financing suggests weak infrastructure recovery,Sinoma,-37%/-From50%HKD3.15to,BUY toHOLD,Since early 2011,funding for infrastructure projects as measured by non-,financial medium-to long-term financing has declined rapidly and continues toremain tight.While
10、the pace of deceleration has slowed recently,improving to,Upside/downside to TP,-9%YoY in August 2012 from-50%in March 2012,the absolute value offinancing is less than half of what it was during the RMB4 trillion stimulus in2009.Further,the investment size of cement-related projects under the,Compan
11、yConch,Target%upside/downsidePriceHKD20.26-16%,Environmental Impact Assessment(EIA)stage(usually 2-3 month lag toconstruction starts)fell by 40%YoY in August,also indicating a weak recoveryto construction.However,isolating those projects likely to be rolled out in 4Q;we found that South China had th
12、e largest value of approvals(32%of China).Prefer CNBM to Conch on valuations;top pick:CR CementWe believe current valuation for Conch implies a V-shaped recovery to ASPs in,CNBMCRCBBMGShanshuiSinomaWCC,HKD9.76HKD5.65HKD7.44HKD4.45HKD2.50HKD1.67,14%25%25%-12%15%23%,East and Central China which seems
13、unlikely.Among the big caps,we preferCNBM over Conch due to more attractive valuations.We recommend beingselective and buying names with a healthy turnaround in supply/demand andASP improvement such as CRC.For small cap names,we recommend WCCgiven the consolidated nature of Shaanxi and the long-term
14、 growth prospects,This report changes ratings,target pricesand/or estimates for several stocksunder our coverage.For details see thetables above.,of cement demand in Western China.Our least preferred name is Shanshuigiven maturing demand in Shandong and Liaoning.Risks:slower/faster-than-expected rec
15、overy in Chinas economy._Deutsche Bank AG/Hong KongAll prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank d
16、oes and seeks to do business with companies covered in its research reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.
17、DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,3 October 2012Metals&MiningChina Cement SectorFigure 1:Summary of companies,Conch,CNBM,CRC,BBMG,Shanshui,Sinoma,WCC,Average,TickerReporting currencyShare price(HKD/sh)as of 09/28/12Target price(HKD/sh)Potential upsid
18、e/downside(%)RatingMarket cap(USD bn),0914.HKCNY24.1520.26-16%Hold16.2,3323.HKCNY8.579.7614%Buy5.8,1313.HKHKD4.515.6525%Buy3.8,2009.HKCNY5.947.4425%Buy3.2,0691.HKCNY5.054.45-12%Hold1.8,1893.HKCNY2.182.5015%Hold1.0,2233.HKCNY1.361.6723%Buy0.7,Recommendation changes,Previous RatingPrevious target Pric
19、e(HKD/sh)%chg to TP,Hold20.260%,Buy10.81-10%,Buy5.650%,Buy7.440%,Hold4.76-7%,Buy3.15-21%,Buy1.670%,Cement capacity(mt),20112012E2013E2014E2012-2014E CAGR(%),180.0201.3223.4239.19%,260.0317.0348.2374.69%,68.772.777.783.77%,39.643.647.651.69%,84.295.6104.2109.27%,87.0102.3112.3117.37%,16.223.723.728.7
20、10%,105.1122.3133.9143.58%,Total sales volume(mt),201020112012E2013E2014E2012-2014E CAGR(%),137.0158.1182.0208.1234.514%,152.3183.4219.6238.1260.69%,32.750.664.971.380.011%,28.536.736.037.639.45%,49.254.954.762.672.415%,46.157.967.980.288.514%,9.911.916.019.022.218%,65.179.191.6102.460.512%,Sales ex
21、posure by regions(2012E),East-Shandong,1%,10%,64%,East-excl.ShandongCentralSouth,61%5%20%,50%12%1%,13%76%,1%,15%6%13%,NorthNortheastNorthwestSouthwest,7%4%,2%11%14%,6%5%,98%1%,6%28%1%,3%63%,100%,ExportASP Assumptions,2%,2012E ASP2013E ASP2014E ASPASP chg,240.1248.2260.7-64.5,269.9271.9284.4-48.0,308
22、.6314.5328.5-52.9,270.1277.6288.0-22.7,273.0271.3275.0-18.4,264.0272.8284.7-65.0,243.2252.0260.5-22.0,2012 ASP chg%,-21%,-15%,-15%,-8%,-6.3%,-20%,-8%,-13%,2012E EPS sensitivity,5%chg in ASP5%chg in sales volume5%chg in coal price,29%4%-6%,31%7%-9%,48%10%-17%,12%1%n/a,35%5%-9%,22%2%n/a,35%7%-8%,30%5%
23、-10%,Neb debt/shareholders equity(%),201220132014,22.1%34.0%17.8%,310%250%240%,95.7%73.8%49.6%,122.9%109.7%96.9%,106.1%119.4%115.3%,252%287%286%,56.8%38.8%28.3%,138.0%130.4%119.2%,Source:Company data,Bloomberg Finance LP,Deutsche Bank,Page 2,Deutsche Bank AG/Hong Kong,3 October 2012Metals&MiningChin
24、a Cement SectorFigure 2:Summary of companies(continued),Conch,CNBM,CRC,BBMG,Shanshui,Sinoma,WCC,Average,TickerReporting currencyShare price(HKD/sh)as of 09/28/12Target price(HKD/sh)Potential upside/downside(%)RatingMarket cap(USD bn),0914.HKCNY24.1520.26-16%Hold16.2,3323.HKCNY8.579.7614%Buy5.8,1313.
25、HKHKD4.515.6525%Buy3.8,2009.HKCNY5.947.4425%Buy3.2,0691.HKCNY5.054.45-12%Hold1.8,1893.HKCNY2.182.5015%Hold1.0,2233.HKCNY1.361.6723%Buy0.7,Profitability-GP(per tonne),2008A2009A2010A2011A2012E2013E2014E,58.859.880.5122.266.770.577.2,36.731.755.8100.565.164.771.3,61.978.7112.6119.362.170.480.6,78.064.
26、060.062.045.150.456.2,48.443.548.688.667.561.256.7,84.088.092.097.045.349.456.8,89.9125.8120.474.356.465.471.7,65.470.281.494.858.361.767.2,EBITDA(per tonne),2008A2009A2010A2011A2012E2013E2014E,53.455.077.2119.563.364.270.0,42.540.053.695.369.670.976.7,86.984.599.6128.766.779.093.3,58.985.675.577.76
27、5.372.078.9,51.150.151.486.571.966.261.8,76.773.374.292.648.152.159.6,100.9141.8138.497.676.383.986.9,67.275.881.499.765.969.875.3,Valuation-P/E,2012201320142013 PE TP,17.915.011.712.6,7.36.65.27.5,17.110.47.013.0,7.26.25.07.8,7.77.77.46.8,14.19.97.111.3,10.76.54.88.0,11.78.96.99.6,P/B,2012201320142
28、013 PB TP,2.11.91.71.6,1.21.10.91.2,1.41.31.11.6,0.90.80.71.0,1.31.21.11.0,0.60.50.50.6,1.11.00.81.2,1.21.11.01.2,EV/tonne(USD/tonne),201220132014,83.776.871.8,77.470.465.5,82.372.064.0,130.2118.8109.8,60.351.346.0,53.749.046.9,57.957.947.8,78.070.964.5,Others-ROE(%),201220132014,12.4%13.3%15.1%,18.
29、0%17.2%18.8%,8.6%12.9%16.6%,13.4%13.7%14.9%,18.4%16.3%15.1%,4.1%5.6%7.3%,10.8%16.2%18.6%,12.2%13.6%15.2%,EPS,201220132014,1.101.311.68,0.951.061.35,0.260.430.64,0.670.770.97,0.530.530.56,0.130.180.25,0.100.170.23,EPS growth(%),2012201320142012-2014E CAGR(%),-49.8%19.1%28.2%23.6%,-36.0%11.4%27.3%19.1
30、%,-58.8%64.8%47.6%56.0%,-17.1%15.1%24.9%19.9%,-32.5%-0.1%6.6%2.1%,-69.3%43.2%39.0%41.1%,-33.7%65.9%33.3%48.7%,-42.5%31.3%29.6%30.0%,Source:Company data,Bloomberg Finance LP,Deutsche Bank,Deutsche Bank AG/Hong Kong,Page 3,Shanxi,Ningxia,Shanghai,Liaoning,Jilin,Jiangxi,Chongqing,Xinjiang,IM,Heilongjia
31、ng,Shandong,Hunan,Beijing,Zhejiang,Guizhou,Yunnan,Henan,Shaanxi,Hainan,Tianjin,Anhui,Hubei,Jiangsu,Guangdong,Sichuan,Guangxi,-,-,for,40,20,0,3 October 2012Metals&MiningChina Cement SectorExecutive summaryWeak cement recovery expected in 4Q except for South ChinaFigure 3:Cement production volumes and
32、 inventory levels across China,Production volume(mt),Inventory levels(%),Most regions in China have,2Q monthly avg,July,August,MoM chg%,July-Peak,Sep 21,ppt chg,yet to see a pickup in cement,North,26.8,25.7,24.7,-4%,80,69,-11,demand with the exception of,Northeast,15.4,15.3,15.2,-1%,73,74,1,South,Ch
33、ina.,Inventory,EastCentralSouthSouthwestNorthwestNationwide,64.730.718.62818.9203,60.429.817.72517.3191.2,60.630.819.52618.7195.5,0%3%11%4%8%2%,757177776974,677362816970,-82-1540-4,declines other than SouthChina are mostly driven byexternal factors such asproduction halts and not fromhealthy demand
34、recovery,Source:Deutsche Bank,Digital Cement,Figure 4:Commodity property GFA starts,Figure 5:Land acquisition area,Cash,flow,for,most,2,0001,8001,6001,4001,2001,000800600400200,YTD Commodity GFA started(msm),YoY,80%70%60%50%40%30%20%10%0%-10%-20%,45040035030025020015010050,Land acquisition area(msm)
35、,YoY,70%60%50%40%30%20%10%0%-10%-20%-30%,developers remains tight andappetite to buy land andincrease construction startshas yet to return.Figure 4and Figure 5 still shownegative YoY growth amid amild pick up in August,Source:Deutsche Bank,Soufun,Source:Deutsche Bank,Soufun,Figure 6:Non FI medium to
36、 long-term,Figure 7:Breakdown of medium to long-term,Credit,remains,tight,financing,financing,infrastructure projects as non-,7,000,250%,100%,financial medium-to long-,6,000,200%,90%80%,term,financing,is,still,5,0004,0003,000,150%100%50%,70%60%50%,85%,81%,82%,66%,59%,recovering slowly and muchlower
37、than 2008-2009 levels.,2,000,0%,40%,The reliance on bond issuance,1,000,-50%,30%20%,34%,41%,shows tightness of liquidity as,0,-100%,10%,15%,19%,18%,corporate seek other sources,0%,2008,2009,2010,2011,2012 ytd Aug,of funding besides bank loans,NonFI:Mediumtolongtermfinancing(RMBbn),%chg,Bond financin
38、g,Loans,Source:Deutsche BankFigure 8:Cement-related investments in EIA stage,Source:Deutsche BankFigure 9:Geographical breakdown of EIA projects,South China has the most,1201008060,RMB bn,Northwest China6%SouthwestChina19%,North China9%,Northeast China3%East China20%,projects at the EnvironmentalImp
39、act Assessment(EIA)stage in the 3Q accounting for,32%of China.There is usually,South China32%,Central China11%,a 2-3 month lag betweenprojects in the EIA stage andproject commencement,Source:Deutsche BankPage 4,Source:Deutsche Bank,Deutsche Bank AG/Hong Kong,3 October 2012Metals&MiningChina Cement S
40、ectorCement demand still weakWeak 3Q demand in China with the exception of South ChinaCement demand in China has been weak this summer even though there was amarginal improvement in August,up 2%MoM.Compared to the average monthlyvolumes of 203mt in 2Q,August volumes of 195mt were still 4%below the l
41、evels seenin 2Q.This can be somewhat explained by seasonality but also by further weakness inthe economy.,Figure 10:Cement volume(ytd)Nationwide000 tonnes,Figure 11:Cement volume(monthly)Nationwide000 tonnes,2,500,0002,000,0001,500,0001,000,000500,0000Cement production volume(ytd)Source:China Cement
42、 Association,Deutsche Bank,YoY chg%(RHS),30%25%20%15%10%5%0%-5%-10%-15%,250,000200,000150,000100,00050,0000Cement production volume(monthly)Source:China Cement Association,Deutsche Bank,MoM chg%(RHS),100%80%60%40%20%0%-20%-40%-60%,The pickup in nationwide volumes in August is mostly driven by South
43、and North WestChina,up 11%and 8%MoM,respectively.Indeed,Guangdong province is the only,province where August volumes were higher than the previous seven months,suggesting an early entrance into the peak season.However,in North and NortheastChina,volumes actually fell,down 4%and 1%MoM,respectively.In
44、 East China,volumes were flat MoM(see Appendix A).,South China is the only regionin China where we see ahealthy recovery in demandwith increased MoM,Overall inventory levels were also down 4ppt in the last two months with South,North,production,volumes,and,and East China showing substantial declines
45、.However,we believe South China was theonly region where the improvement in inventories was demand driven.We believedeclining inventories in the East were mainly a function of production halts,while NorthChina was a function of factories temporarily shutting down after sustained lowprofitability.As
46、a result,South China has the best momentum heading into 4Q.Figure 12:Production volume and inventory levelsProduction volume(mt),reduced inventoriesInventory levels(%),2Q monthly avg,July,August,MoM chg%,July-Peak,Week of Sep 21,ppt chg,NorthNortheastEastCentralSouthSouthwestNorthwestNationwide,26.8
47、15.464.730.718.628.018.9203.0,25.715.360.429.817.725.017.3191.2,24.715.260.630.819.526.018.7195.5,-4%-1%0%3%11%4%8%2%,8073757177776974,6974677362816970,-111-82-1540-4,Source:Digital Cement,Deutsche Bank,Deutsche Bank AG/Hong Kong,Page 5,3 October 2012Metals&MiningChina Cement SectorInfrastructure-re
48、lated cementdemand is still weakMedium to long-term financing is still negative YoYAccording to data from Deutsche Banks China Economics team,non-financial mediumto long-term financing(an aggregate of medium to long-term loans and bonds issued)measures the funding available for corporations to inves
49、t in business-related activities.On 5-6 September,the government announced c.RMB1 trillion in metro and highwayprojects but according to our economics team,the funding for these projects remains indoubt as 20%of the cost needs to be borne by local governments(poor land sales thisyear shrank the bala
50、nce sheets of local governments).Hence,it is more important tostudy the financing available rather than the number and size of such investments.Thenon-financial medium to long-term financing is a leading indicator to a recovery ininfrastructure projects as this is linked to the ability to finance su
