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Deutsche Bank AG/Hong Kong
Deutsche Bank does 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. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 072/04/2012.
Johnson Wan
Research Analyst
(+852) 2203 6163
johnson.wan@db.com
James Kan
Research Analyst
(+852) 2203 6146
james.kan@db.com
Top picks
CR Cement (1313.HK),HKD5.02 Buy
CNBM (3323.HK),HKD12.36 Buy
Calendar
Company Reporting
Date
Analyst
Meeting
CRC (1313.HK) 1-Mar-13 4-Mar-13
Tianrui
(1252.HK)
1-Mar-13 5-Mar-13
Shanshui
(0691.HK)
15-Mar-
13
WCC (2233.HK) 18-Mar-
13
19-Mar-
13
ACC (743.HK) 18-Mar-
13
TCCI (1136.HK) 20-Mar-
13
21-Mar-
13
BBMG
(2009.HK)
21-Mar-
13
Conch
(0914.HK)
22-Mar-
13
Sinoma
(1893.HK)
25-Mar-
13
We conducted an in-depth review on Chinese cement companies’ earnings
after getting last minute face time (prior to blackout) with them during our
Access China conference. FY12 results for most companies should be in line,
with the exception of CNBM where we see upside risk to consensus earnings.
Recent good weather has improved visibility for 2Q price hikes with low
inventory levels seen across East and South China. The major beneficiaries are
Conch, CNBM and CRC where we see upside risk to FY13 earnings. The
smaller cap names Shanshui and Sinoma may see further downside risk to
FY13 consensus earnings, in our view.
FY12 earnings preview – Earnings in line but expected to decline by 41% YoY
We expect FY12 sector earnings to decline by an average of 41% after the high
base in 2011. For the companies under our coverage, we expect FY12 cement
ASPs to fall by an average of c.14% YoY, partially offset by strong volume
growth of c.18% YoY. We expect earnings for CNBM to decline the least and
surprise positively, due to a sizable earnings contribution from concrete in 2H.
Profit warning no longer significant
The HK Exchange does not have pre-set criteria to issue profit warnings but
based on past experience, cement companies with earnings declines of more
than 50% YoY will normally issue a warning – i.e. CR Cement and Sinoma, in
this case. However, we do view this as a negative catalyst as it should already
be well expected by investors.
Low inventory levels heading into CNY; visibility for 2Q price hikes improves
Over the past few weeks, good weather in East and South China has led to
restarts in construction projects, thus lowering the inventory levels of clinker
producers. For some producers such as CR Cement, inventory levels in South
China have dropped to c.25% of storage capacity (or empty inventories). As a
result, nationwide cement prices stabilized last week and confidence for price
hikes post CNY has improved significantly.
Reiterating our Buy rating on CR Cement and CNBM
We believe CRC and CNBM have the biggest risk for FY13 consensus earnings
upgrades. In particular, CRC has underperformed its peers in the last few
months and we believe the Street is too bearish on the company’s 2013
outlook. Our target prices are derived using PE-based valuation on 2013E
earnings. Risks: a slower-/faster-than-expected recovery in China’s economy.
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