大和证券：中国水泥行业研究报告2009年3月

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China Cement Sector
China: Materials
Positive
Jason Li, CFA
(852) 2848 4499
jason.li@dir.com.hk
Initiation of coverage: focus on large-volume, low-cost cement producers
Summary
􀂃 We initiate coverage of the China cement sector with a Positive rating. Although concerns in
the market about nationwide overcapacity are increasing, we believe the large-volume, lowcost
cement producers will be the main beneficiaries in the sector of incremental demand
growth resulting from the PRC Government’s stimulus package and a realignment of the
demand metrics. In some localised markets, we see either demand pull or supply constraints
as providing some downside protection from a drop in cement prices.
􀂃 In our view, the cement sector’s outperformance against the Hang Seng Index (HSI) is likely to be
sustained over the next six months by flat power tariffs and declining spot coal prices – costs that
account for about 70% of total input costs for cement producers. We forecast cement and spot
coal prices to decline by 6.5% YoY and 25% YoY, respectively for 2009, and rise by 2% YoY and
fall by 5% YoY, respectively, for 2010, and power tariffs to remain unchanged for both years.
􀂃 For China National Building Material (CNBM), our earnings forecasts are 2% and 13% higher
than those of the IBES consensus for 2008 and 2009, respectively; for Anhui Conch Cement
(Anhui Conch), they are 7% and 23% higher, respectively. We believe large-volume stateowned
players, like Anhui Conch and CNBM, are likely to be the biggest beneficiaries in the
sector from the stimulus measures introduced by the central and local governments, which use
quantity, quality and price as the main criteria for awarding contracts.
􀂃 We initiate coverage of CNBM with a 1 (Buy) rating and a sum-of-the-parts (SOTP)-based sixmonth
target price of HK$13.53. We believe its debt burden has eased with the new share
placement, the halting of its aggressive acquisition strategy, and optimisation of its debt structure.
􀂃 We initiate coverage of Anhui Conch with a 2 (Outperform) rating and a six-month target price
of HK$43.09, based on a DCF valuation using a WACC of 11.3%. Following the recent shareprice
correction, its valuations have declined to what we see as attractive levels.

Contents
Investment summary.........................................................................................................3
We are positive on CNBM and Anhui Conch ...........................................................3
Core drivers of share-price performance ..........................................................................6
Industry outlook: overcapacity likely to dampen prices ...................................................8
We believe cement prices face downside risk ...........................................................8
On the demand side, we expect consumption growth to slow...................................8
On the supply side, we expect cement overcapacity to continue in 2009 .................9
We believe overcapacity will put downward pressure on cement prices ................11
Company section
China National Building Materials (3323 HK) .......................................................12
Anhui Conch Cement (914 HK) ..............................................................................23

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