Rating: OUTPERFORM (maintain)
Our weekly wrap-up of the cement sector
The CITIC Cement Index fell 1.3% last week. 1H21 cement production came to 1.15bn tons, +14.1%/+9.8% from 2020/19; cement output in June was 224m tons, -2.9%/+6.9 % from 2020/19. We expect the cement industry to improve in 2H21. Total new government special bonds quota in 1H was RMB1.0tr, with RMB2.65tr more to be issued in order to meet the annual target of RMB3.65tr. We expect more rapid issuance of special bonds in 2H. Approvals could be accelerated and the previously announced RRR cut would release about RMB1tr in long-term liquidity, which would help downstream funding. We continue to expect a rebound in cement prices during peak season. The impact of high coal prices on corporate profits should gradually slow down. With a low base in 2H20, net profit of cement companies could exceed expectations. Current valuations of cement stocks are at new lows in comparison with recent years. We believe China’s drive to achieve its carbon neutral and peak targets would shake out small supply companies with heavy energy consumption and lead the market shares of large companies to increase. This would boost regional synergy and optimize the industry structure. Hence, we see opportunities for stock re-ratings.
Aggregates present a new blue ocean for cement companies
With the main cement segment under growth pressure, aggregates present a new blue ocean of opportunities for cement companies. According to ccement.com, the top 10 aggregate companies combined make up less than 500m tons of capacity, accounting for less than 3% of the total, well below the industry concentration of cement. From 2017 to 2018, China shut down nearly 30,000 sand and gravel mines. With tightening mineral rights management and control, scarcity of aggregate supply has increased. Increases in mining costs have raised entry barriers for small companies. The aggregate segment offers a higher gross profit margin, so we believe this business would drive a new growth momentum for cement companies. Companies such as Huaxin Cement (600801 CH, BUY) and Anhui Conch Cement (600585 CH, BUY) have first-mover advantages in the aggregate segment.
Our weekly takeaways on the cement industry
Last week, the average cement price in key cities across China was RMB422/ton, RMB10/ton lower wow and RMB6.3/ton lower yoy. Regions with the worst declines (RMB10-50/ton declines) were East, Central, South, Southwest and Northwest China. In mid-July, despite the rainy season coming to an end in the southern region, rainstorms occurred in some areas. Downstream cement demand improved slightly from the previous week. Shipment rates of producers in East, South and Southwest China increased 5-10% wow. Under high pressure, companies have been trying to seize market share, driving cement price declines. Various regions are gradually approaching electricity consumption peaks. This might mean electricity rationing for the cement industry. The implementation of electricity rationing or partial hedging of demand declines could support off-season prices to an extent. We would look out for changes in short-term electricity policy.
Recommendations
Huaxin Cement (600801 CH, BUY): its main market in Central China was most affected by the 2020 pandemic, leading to high volumes and price elasticity in 2021. The aggregate business presents new opportunities and the company has doubled its sales target for 2021.
Gansu Shangfeng Cement (000672 CH, BUY): geographical advantage in its East China location.
Anhui Conch Cement (600585 CH, BUY): as a national leader with both scale and cost advantages, it would benefit the most from the carbon emission reduction policy.
Related stock (not rated): China National Building Material Company
Risks include: a sharp decline in cement demand; off-season prices falling more than expected; and intensifying competition in the aggregate business.
免责声明(DISCLAIMER):
此文件仅发给指定收件人或机构。其内容可能包含某种享有法律特权或者需要保密的信息。对于任何未经本公司授权而对本文件所载内容进行使用、披露、分发、变更之行为及由此产生的后果，天风国际证券集团有限公司及其联属公司和附属公司（「天风集团」）概不承担任何责任。如您并非此文件的指定收件人或机构，请立即通知天风集团，并立即销毁此文件。谢谢合作。
This message is intended only for the individual or entity to which it is addressed. It may contain legally privileged and/or confidential information. TF International Securities Group Limited and its affiliates and subsidiaries (「TF Group」) does not accept liability for the unauthorized use, disclosure, distribution and/or alteration of any information it contains or the consequences thereof. If you are not an intended recipient, please inform TF Group and destroy this message immediately. Thank you.
評級：強於大盤(維持)
我們每週一次的水泥行業總結
中信水泥指數上週下跌1.3%。2011年第一季度水泥產量達到11.5億噸，比2020/19年增長14.1%/+9.8%；6月份水泥產量為2.24億噸，比2020/19年增長2.9%/6.9%。我們預計水泥行業在2019年下半年將有所改善。上半年新增政府專項債券額度為1.0萬億元，為實現3.65萬億元的年度目標，還需再發行2.65萬億元。我們預計下半年會有更多的專項債券快速發行。審批可能會加快，此前宣佈的下調存款準備金率將釋放約1萬億元人民幣的長期流動性，這將有助於下游融資。我們繼續預計水泥價格會在旺季反彈。煤價高企對企業利潤的影響應該會逐漸減緩。在20年第二季度基數較低的情況下，水泥企業的淨利潤可能會超出預期。與近幾年相比，目前水泥庫存的估值處於新低。我們相信，中國實現其碳中性和峯值目標的努力，將淘汰能源消耗嚴重的小型供應公司，並導致大公司的市場份額增加。這將促進區域協同，優化產業結構。因此，我們看到了股票重新評級的機會。
骨料為水泥公司提供了一片新的藍海
隨着主要水泥部門面臨增長壓力，骨料為水泥公司提供了一片新的機遇藍海。根據Ccement.com的數據，排名前10位的集合體公司加起來的產能不到5億噸，佔總產能的不到3%，遠低於水泥的行業集中度。從2017年到2018年，中國關閉了近3萬座砂石礦山。隨着礦業權管理和控制的加強，總供給的稀缺性增加。採礦成本的增加提高了小公司的進入門檻。聚合業務提供了更高的毛利率，因此我們相信這項業務將為水泥公司帶來新的增長動力。華信水泥(600801 CH，Buy)和安徽海螺水泥(600585 CH，Buy)等公司在骨料領域擁有先發優勢。
我們關於水泥行業的每週外賣
上週，全國重點城市水泥均價為422元/噸，同比下降10元/噸，同比下降6.3元/噸。降幅最大(10-50元/噸)的地區是華東、華中、華南、西南和西北。7月中旬，儘管南方地區雨季即將結束，但部分地區仍出現暴雨。下游水泥需求較前一週略有改善。華東、華南和西南地區生產商的出貨率增長了5-10%。在高壓下，企業一直試圖搶佔市場份額，推動水泥價格下跌。各地區用電量逐漸接近高峯。這可能意味着水泥行業的電力配給。實施限電或部分對衝需求下降，可以在一定程度上支撐淡季價格。我們將密切關注短期電力政策的變化。
建議
Huaxin Cement (600801 CH, BUY): its main market in Central China was most affected by the 2020 pandemic, leading to high volumes and price elasticity in 2021. The aggregate business presents new opportunities and the company has doubled its sales target for 2021.
Gansu Shangfeng Cement (000672 CH, BUY): geographical advantage in its East China location.
Anhui Conch Cement (600585 CH, BUY): as a national leader with both scale and cost advantages, it would benefit the most from the carbon emission reduction policy.
Related stock (not rated): China National Building Material Company
Risks include: a sharp decline in cement demand; off-season prices falling more than expected; and intensifying competition in the aggregate business.
免責聲明(DISCLAIMER):
此文件僅發給指定收件人或機構。其內容可能包含某種享有法律特權或者需要保密的信息。對於任何未經本公司授權而對本文件所載內容進行使用、披露、分發、變更之行為及由此產生的後果，天風國際證券集團有限公司及其聯屬公司和附屬公司（「天風集團」）概不承擔任何責任。如您並非此文件的指定收件人或機構，請立即通知天風集團，並立即銷燬此文件。謝謝合作。
This message is intended only for the individual or entity to which it is addressed. It may contain legally privileged and/or confidential information. TF International Securities Group Limited and its affiliates and subsidiaries (「TF Group」) does not accept liability for the unauthorized use, disclosure, distribution and/or alteration of any information it contains or the consequences thereof. If you are not an intended recipient, please inform TF Group and destroy this message immediately. Thank you.
