National cement prices are rebounding in September, marking a historical high. Southwestern/central southern China saw cement price hikes, supported by demand recovery and tight supply on power bottlenecks. Inventory is falling fast given the rise in construction activities and weaker supply. However, cement-coal spread remains under pressure in 3Q21 on high coal costs. Valuation recovered to 0.5SD below the historical mean level. BUY Anhui Conch, CNBM and CR Cement. Maintain MARKET WEIGHT.
CNBM’s 1H21 net profit surged 47.9%yoy to Rmb7.96b, beating our expectation. Revenue boosted 14% yoy on higher sales volumes growth across segments. We saw easing financing cost pressure and less impairment loss booked in 1H21. Higher full-year capex was budgeted to accelerate expansion in the new materials segment. We share management’s view that the cement market is expected to recover in 4Q21. Maintain BUY, with higher target price of HK$13.50.
KEY HIGHLIGHTS Results Anhui Conch Cement Co (914 HK/BUY/HK$41.05/Target: HK$51.00) 1H21: A resilient set of results; expect demand to recover in 4Q21. China National Building Material (3323 HK/BUY/HK$9.80/Target: HK$13.50) 1H21: Results better than expectation; expansion in new materials segment to accelerate. Dongfeng Motor (489 HK/BUY/HK$8.12/Target: HK$10.00) 1H21: Earnings up 137% yoy, beating estimates; a special dividend of Rmb0.40 declared. Maintain BUY and raise target price to HK$1...
Full Article at IIR has reaffirmed its Recommended rating for PIA after undertaking a review post the appointment of a new Portfolio Manager, Harding Loevner. The full report can be found on the IIR website. On 26 July 2021, Pengana International Equities Limited (PIA) announced a fully franked dividend of 1.35 cents per share for the June quarter. This represents an 8% increase on the March quarter dividend and takes the total dividends declared for FY21 of 5.1 cents per share, fully franked....
National cement prices have been trending down since late-May with 5M21 national cement production yoy growth slowing to 19.2% yoy. Inventory has been piling up due to unfavourable weather conditions and weak construction activities. Cement-coal spread shrank in 2Q21. Valuation is now approaching a historical low due to the pessimistic outlook amid the low demand. Maintain MARKET WEIGHT on sector-wide undemanding valuation, but trim target prices of Anhui Conch, CR Cement, and CNBM.
China national average cement price has been trending up since mid-March and is 9.5% higher yoy as of 21 May. Inventory levels are hovering at low levels, while production volume growth may slow down with the start of the rainy season in the southern region. With the easing coal cost pressure, we expect the leading cement companies’ margins to recover in 3Q21. Upgrade the cement sector to MARKET WEIGHT. Our top pick is Anhui Conch.
CNBM’s 2020 net profit rose 14% yoy to Rmb12.55b, in line with expectations. Finance cost pressure continued to ease the de-leveraging progress and CNBM aims to achieve its debt reduction targets for 2021. Impairment losses are expected to fall starting from 2021. We also expect to see further re-rating of CNBM with more business restructuring plans to be announced in the future. Maintain BUY. Target price: HK$13.32.
GREATER CHINA Sector Education: AST: Intensified regulations; slower online growth moving ahead. Results China National Building Material (3323 HK/BUY/HK$10.32/Target: HK$13.32): 2020:Results in line; de-leveraging on track; impairment loss pressure to ease. Guangzhou Automobile Group (2238 HK/BUY/HK$6.60/Target: HK$8.50): 4Q20: Results miss estimates on provision for asset impairment; cut target price to HK$8.50. Maintain BUY. Han’s Laser (002008 CH/BUY/Rmb41.33/Target: Rmb50.00): 2020: No surp...
KEY HIGHLIGHTS Sector Education AST: Intensified regulations; slower online growth moving ahead. Results China Meidong Auto Holdings (1268 HK/BUY/HK$35.50/Target: HK$41.00) 2H20: Core net profit up 51% yoy, in line with estimates; upgrade to BUY on stronger earnings growth and raise target price to HK$41.00. China National Building Material (3323 HK/BUY/HK$10.32/Target: HK$13.32) 2020:Results in line; de-leveraging on track; impairment loss pressure to ease. China Resources Gas Group (1193...
Cement and clinker prices in the Yangtze River Delta saw their first hikes in 2021 coming in much earlier than expected. This was due to low inventory levels and the earlier resumption of construction work. The sector is currently trading at 0.5 to 1.0SD below the historical mean PE after a major pullback in 2H20. We expect the sector’s valuations to recover in the near term due to positive catalysts like the price hikes and the low base in 2020. Maintain UNDERWEIGHT.
The average cement price fell 3.2% yoy in 4Q20 due to a high base. Margins were also squeezed due to coal price hikes. Cement production rose 1.2% in 11M20, while inventory level was healthy at 51.6% at end-20. We turn cautious on the cement market for 2021 and maintain UNDERWEIGHT. We prefer Anhui Conch and CR Cement for their earnings visibility and sustained high dividends.
The upward momentum in cement prices since the end of the rainy season remains intact with national ASP edging up 3.4%. The eastern and southern regions led the prices rally with respective increases of 7.4% and 2.4%. However, recent stronger-thanexpected domestic coal prices may weigh on cement gross margin in 4Q20. The sizeable number of infrastructure projects commencing construction in 4Q20 is expected to serve as a key catalyst for the cement sector. Maintain OVERWEIGHT. Top picks: CR Cemen...
The uptrend in cement prices since the end of the rainy season continues with the national average cement price rising 2% to Rmb422.05/tonne. National cement storage capacity ratio has dropped 14ppt since 24 July. National cement production as of July was still 3.5% lower yoy. Entering the peak season for construction activities coupled with the sizeable number of infrastructure projects in the pipeline, cement prices are expected to rally in the coming months. Maintain OVERWEIGHT.
After a strong rally for three consecutive months, the MSCI China index has come near an all-time high of 102.5pt, with the 12-month forward PE of MSCI China trading at a new high of 15.2x. We re-iterate our strategy to avoid beta chasing. Focus on beneficiaries of policy support and domestic demand recovery. New inclusions are Feihe, Han's Laser, Kingsoft Corp, Link REIT, Times Neighborhood, and WuXi AppTec.
KEY HIGHLIGHTS Strategy Alpha Picks: Greater China September Conviction List: With the 12-month forward PE of MSCI China trading at a new high of 15.2x, the divergence of current market performance from fundamentals is too large to ignore. TRADERS’ CORNER COSCO Ship Port (1199 HK): Trading Buy Range: HK$4.62-4.63 Longfor Group (960 HK): Trading Buy Range: HK$43.45-43.50
CNBM posted 1H20 net profit decline of 6% to Rmb5.4b, while PBT grew 6.3% yoy, in line with expectations. We stay positive on the domestic cement market in 2H20 and expect the company to achieve its debt reduction targets for 2020. We also expect a further re-rating with more business restructuring plans to be announced in the near future. Maintain BUY and target price of HK$15.80.
GREATER CHINA Results China National Building Material (3323 HK/BUY/HK$11.22/Target: HK$15.80): 1H20:Results in line; restructuring of cement business on track. CIFI Holdings (884 HK/BUY/HK$6.78/Target: HK$7.50): 1H20: Results in line; confident of 2020 sales target. Great Wall Motor (2333 HK/BUY/HK$7.88/Target: HK$10.00): 2Q20: Net profit spiked 141% yoy, beating estimates on higher ASP and margins. Upgrade from HOLD to BUY, and raise target price from HK$5.90 to HK$10.00. Shandong Gold Minin...
KEY HIGHLIGHTS Results Baoshan Iron & Steel (600019 CH/HOLD/Rmb4.98/Target: Rmb5.75) 1H20: Results beat expectation; stay clam amid headwinds. China National Building Material (3323 HK/BUY/HK$11.22/Target: HK$15.80) 1H20:Results in line; restructuring of cement business on track. China Shenhua Energy Co. Ltd (1088 HK/BUY/HK$12.58/Target: HK$19.02) 1H20: Weak results in line; proposing plan to repurchase H-shares; maintain BUY. China Shineway Pharmaceutical (2877 HK/BUY/HK$5.40/Target: HK$...
With the rainy season coming to an end, we are not surprised about the nationwide rebound of cement prices, particularly in the eastern China region, thanks to robust pent-up demand from construction activities’ resumption. We expect such a price recovery to sustain from September onwards and continue for the rest of the year, thanks to the government’s further announcements of mega infrastructure projects along with funding support from LGSB issuance. Maintain OVERWEIGHT.
REGIONAL Sector Banks: ASEAN banks monthly. GREATER CHINA Strategy Industrial Profits – The Read Across: Though June industrial profits rebounded 11.5% yoy, many underlying issues remain; expect further EPS downgrades and need for further policy support. Update China National Building Material (3323 HK/BUY/HK$12.02/Target: HK$15.80): Restructuring of cement business kicks off re-rating of CNBM. INDONESIA Update Bank Central Asia (BBCA IJ/HOLD/Rp31,050/Target: Rp34,500): Raise 2020 net profit...
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