China Cement - JRJpg.jrj.com.cn/acc/Res/CN_RES/INDUS/2018/1/8/eaa67809-933f-43f3-a65… · China...
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Deutsche Bank Markets Research Asia Hong Kong Resources Construction Materials Industry China Cement Date 8 January 2018 Company Update Three positive profit alerts; 4Q17 exceeds expectations Earnings and target price upgrades after stronger than expected 4Q17 ________________________________________________________________________________________________________________ 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. MCI (P) 083/04/2017. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLE’S REPUBLIC OF CHINA (“THE PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU. Johnson Wan Research Analyst (+852 ) 2203 6163 [email protected] Key Changes Company Target Price Rating 0914.HK 40.00 to 46.00(HKD) - 600585.SS 34.80 to 38.30(CNY) - 2233.HK 2.04 to 2.25(HKD) - 1313.HK 6.49 to 6.81(HKD) - 0586.HK 23.45 to 25.75(HKD) - Source: Deutsche Bank Top picks West China Cement (2233.HK),HKD1.25 Buy CR Cement (1313.HK),HKD5.66 Buy Conch Venture (0586.HK),HKD19.18 Buy Source: Deutsche Bank After market close on Jan 5, Conch and CRC released positive profit alerts for FY17 results, while WCC also released their profit alert on Dec 29, 2017. All three earnings pre-releases point to an exceptionally strong 4Q, which warrants us to upgrade our numbers for FY17/18 and maintain our positive view on the cement upcycle. The strength in 4Q17 results will also have a knock-on impact on 1H18 results, as pricing can be sustained at a high level due to extremely low inventory levels. We believe smaller cap laggard names will have better near-term upside here, namely Conch Venture, CRC and WCC. Summarizing the profit alerts Conch preannounced FY17 NP would be 70-90% higher yoy, while we estimate Conch’s earnings would hit RMB15.97bn or EPS of RMB3.01/sh, up c.86% yoy implying GP/t reached RMB120/t in 4Q. Vols. for Conch also will surprise in 4Q, up 8% yoy as they continue to take mkt share from peers with environmental issues. CRC, however, pre-announced avg selling prices for 11M17 were 19.4% yoy higher, reaching HKD291.2/t, though they did not disclose magnitude of earnings increase. We estimate FY17 earnings will reach HKD3.89bn or EPS of HKD0.6/sh, up 94% yoy. WCC announced revenue had increased by 28% yoy for 11M17, together with an FX gain of RMB125.9m for its USD400m bond. We estimate 2H17 GP/t average RMB72/t with earnings likely hitting RMB721m or EPS of RMB0.13/sh, up 6890% yoy. Inventory levels at all-time lows entering 1Q18 Nationwide inventory levels have declined for 11 consecutive wks, hitting record low of 50% of storage capacity for last wk of Dec, c.20% and c.34% lower than in 2016 and 2015, respt. In some regions, e.g., Eastern China, inv. fell to 43% of storage cap.; large producers had no inv. At 50% of storage cap., this implies only 2-3 days of inventory for the avg. producer, as bottom 25% of storage tanks can’t easily be extracted. Low level of inv. reflects structural shift in industry to focus on environment and supply, with peak shifting production halts being very effective in curbing overcapacity. Most of winter shutdowns won’t end till mid-to-end March; 1Q18 pricing will stay elevated while 2Q18 peak season should see strong restocking on empty inv.; thus, 1H18 pricing should be much higher than expected, prompting our earnings upgrades. Earnings revisions of 3%-18% for FY17-18 earnings; valuation and risks Given strength in 4Q pricing, Conch, CRC and WCC will exit Dec 17 at record GP/t of c.RMB140/t, HKD125/t and c.RMB80/t, respectively, by our est. During slower 1Q18, vol. will be lower and the coal price should be flat-to-down QoQ, but ASP should only see limited correction. Thus, 1Q18 will see strong earnings growth, as Conch, CRC and WCC achieved a GP/t of RMB65/t, HKD87/t and RMB51/t respectively in 1Q17. We upgrade FY17 earnings for Conch/CRC/WCC by 7%/3%/18% and FY18 earnings by 10%/5%/7% respectively. We have kept our valuation methodology unchanged at 12x and 10x PE for Conch and CRC respt., while we value WCC based on RMB400/t, which also implied 10x FY18 PE. Risks: higher-than-expected coal price, breakdown of winter production halts. Distributed on: 07/01/2018 19:24:25 GMT 7T2se3r0Ot6kwoPa
Transcript of China Cement - JRJpg.jrj.com.cn/acc/Res/CN_RES/INDUS/2018/1/8/eaa67809-933f-43f3-a65… · China...
Deutsche Bank Markets Research
Asia
Hong Kong
Resources
Construction Materials
Industry
China Cement
Date
8 January 2018
Company Update
Three positive profit alerts; 4Q17 exceeds expectations
Earnings and target price upgrades after stronger than expected 4Q17
________________________________________________________________________________________________________________ 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. MCI (P) 083/04/2017. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLE’S REPUBLIC
OF CHINA (“THE PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC),
EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU.
Johnson Wan
Research Analyst
(+852 ) 2203 6163
Key Changes
Company Target Price Rating
0914.HK 40.00 to 46.00(HKD)
-
600585.SS 34.80 to 38.30(CNY)
-
2233.HK 2.04 to 2.25(HKD) -
1313.HK 6.49 to 6.81(HKD) -
0586.HK 23.45 to 25.75(HKD)
-
Source: Deutsche Bank
Top picks
West China Cement (2233.HK),HKD1.25 Buy
CR Cement (1313.HK),HKD5.66 Buy
Conch Venture (0586.HK),HKD19.18 Buy
Source: Deutsche Bank
After market close on Jan 5, Conch and CRC released positive profit alerts for FY17 results, while WCC also released their profit alert on Dec 29, 2017. All three earnings pre-releases point to an exceptionally strong 4Q, which warrants us to upgrade our numbers for FY17/18 and maintain our positive view on the cement upcycle. The strength in 4Q17 results will also have a knock-on impact on 1H18 results, as pricing can be sustained at a high level due to extremely low inventory levels. We believe smaller cap laggard names will have better near-term upside here, namely Conch Venture, CRC and WCC.
Summarizing the profit alerts Conch preannounced FY17 NP would be 70-90% higher yoy, while we estimate Conch’s earnings would hit RMB15.97bn or EPS of RMB3.01/sh, up c.86% yoy implying GP/t reached RMB120/t in 4Q. Vols. for Conch also will surprise in 4Q, up 8% yoy as they continue to take mkt share from peers with environmental issues. CRC, however, pre-announced avg selling prices for 11M17 were 19.4% yoy higher, reaching HKD291.2/t, though they did not disclose magnitude of earnings increase. We estimate FY17 earnings will reach HKD3.89bn or EPS of HKD0.6/sh, up 94% yoy. WCC announced revenue had increased by 28% yoy for 11M17, together with an FX gain of RMB125.9m for its USD400m bond. We estimate 2H17 GP/t average RMB72/t with earnings likely hitting RMB721m or EPS of RMB0.13/sh, up 6890% yoy. Inventory levels at all-time lows entering 1Q18 Nationwide inventory levels have declined for 11 consecutive wks, hitting record low of 50% of storage capacity for last wk of Dec, c.20% and c.34% lower than in 2016 and 2015, respt. In some regions, e.g., Eastern China, inv. fell to 43% of storage cap.; large producers had no inv. At 50% of storage cap., this implies only 2-3 days of inventory for the avg. producer, as bottom 25% of storage tanks can’t easily be extracted. Low level of inv. reflects structural shift in industry to focus on environment and supply, with peak shifting production halts being very effective in curbing overcapacity. Most of winter shutdowns won’t end till mid-to-end March; 1Q18 pricing will stay elevated while 2Q18 peak season should see strong restocking on empty inv.; thus, 1H18 pricing should be much higher than expected, prompting our earnings upgrades. Earnings revisions of 3%-18% for FY17-18 earnings; valuation and risks Given strength in 4Q pricing, Conch, CRC and WCC will exit Dec 17 at record GP/t of c.RMB140/t, HKD125/t and c.RMB80/t, respectively, by our est. During slower 1Q18, vol. will be lower and the coal price should be flat-to-down QoQ, but ASP should only see limited correction. Thus, 1Q18 will see strong earnings growth, as Conch, CRC and WCC achieved a GP/t of RMB65/t, HKD87/t and RMB51/t respectively in 1Q17. We upgrade FY17 earnings for Conch/CRC/WCC by 7%/3%/18% and FY18 earnings by 10%/5%/7% respectively. We have kept our valuation methodology unchanged at 12x and 10x PE for Conch and CRC respt., while we value WCC based on RMB400/t, which also implied 10x FY18 PE. Risks: higher-than-expected coal price, breakdown of winter production halts.
Distributed on: 07/01/2018 19:24:25 GMT
7T2se3r0Ot6kwoPa
8 January 2018
Construction Materials
China Cement
Page 2 Deutsche Bank AG/Hong Kong
Inventory levels stayed at multi-year low
Figure 1: National average Figure 2: North China
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Source: Deutsche Bank, Digital Cement
Source: Deutsche Bank, Digital Cement
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Source: Deutsche Bank, Digital Cement
Source: Deutsche Bank, Digital Cement
Figure 5: Central China Figure 6: South China
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Source: Deutsche Bank, Digital Cement
Source: Deutsche Bank, Digital Cement
8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 3
Figure 7: SW China Figure 8: NW China
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Source: Deutsche Bank, Digital Cement
Source: Deutsche Bank, Digital Cement
Pricing at multi-year high
Figure 9: National average Figure 10: North China
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Source: Deutsche Bank, Digital Cement
Source: Deutsche Bank, Digital Cement
Figure 11: NE China Figure 12: East China
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Source: Deutsche Bank, Digital Cement
Source: Deutsche Bank, Digital Cement
8 January 2018
Construction Materials
China Cement
Page 4 Deutsche Bank AG/Hong Kong
Figure 13: Central China Figure 14: South China
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Source: Deutsche Bank, Digital Cement
Source: Deutsche Bank, Digital Cement
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Source: Deutsche Bank, Digital Cement
Source: Deutsche Bank, Digital Cement
8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 5
Earning revisions
Conch-H (0914.HK, Buy, TP HKD40.0 -> HKD46.0)
Conch-A (600585.SS, Buy, TP CNY34.8 -> HKD38.3)
Figure 17: Summary of changes
New
2016A 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E
Cement & Clinker sales volume (mt) 278.3 293.9 310.1 322.5 290.7 304.3 316.6 1% 2% 2%
Cement & Clinker ASP (RMB) 196.6 243.5 247.6 251.1 238.2 238.0 241.8 2% 4% 4%
Unit Cement COGS (RMB) 132.3 155.5 154.4 156.1 154.6 150.3 152.1 1% 3% 3%
Unit Gross Profit (RMB) 64.3 88.0 93.2 95.0 83.7 87.7 89.7 5% 6% 6%
Unit SG&A (RMB) 24.5 23.2 23.2 23.2 23.2 23.2 23.2 0% 0% 0%
Unit EBITDA (RMB) 60.6 90.4 89.6 92.5 86.3 84.5 87.5 5% 6% 6%
Unit EBIT (RMB) 43.6 74.8 74.3 76.9 70.5 68.9 71.7 6% 8% 7%
Unit Net Profit (RMB) 30.8 54.3 54.6 57.2 51.1 50.5 53.2 6% 8% 7%
New
For year ended Dec 31 (RMB mn) 2016A 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E
Revenue 55,932 73,683 79,375 84,114 71,348 75,031 79,681 3% 6% 6%
Cost of sales (38,396) (47,636) (50,049) (52,750) (46,859) (47,893) (50,557) 2% 5% 4%
Gross Profit 17,536 26,047 29,326 31,364 24,488 27,137 29,124 6% 8% 8%
SG&A (6,806) (6,819) (7,193) (7,481) (6,743) (7,060) (7,345) 1% 2% 2%
Other Income 1,395 2,767 909 929 2,757 891 912 0% 2% 2%
EBITDA 16,878 26,562 27,778 29,812 25,070 25,705 27,691 6% 8% 8%
Depreciation and Amortization (4,753) (4,568) (4,736) (5,000) (4,568) (4,736) (5,000) 0% 0% 0%
Operating Profit (EBIT) 12,125 21,994 23,041 24,812 20,502 20,969 22,691 7% 10% 9%
Net interest (329) (66) 205 513 (88) 145 447 -25% 41% 15%
Pre-tax profit 11,699 21,926 23,245 25,326 20,412 21,113 23,139 7% 10% 9%
Income tax (2,703) (5,153) (5,463) (5,952) (4,797) (4,962) (5,438) 7% 10% 9%
Minority interests (423) (805) (854) (930) (750) (775) (850) 7% 10% 9%
Net Profit 8,574 15,968 16,929 18,444 14,866 15,376 16,852 7% 10% 9%
EPS 1.62 3.01 3.19 3.48 2.81 2.90 3.18 7% 10% 9%
Old % chg
Old % chg
Source: Deutsche Bank estimates, Company data
Valuation & risks
We value Conch-H based on 12x FY18 PE, which is equivalent to its mid-cycle
average. This also implies 2.1x PB on 18.4% ROE, which we believe is justified.
We value Conch-A using Conch-H TP with 2018E CNYHKD.
Risks: slowdown in demand, breakdown in price cooperation and higher coal
prices.
8 January 2018
Construction Materials
China Cement
Page 6 Deutsche Bank AG/Hong Kong
CR Cement (1313.HK, Buy, HKD6.49 -> HKD6.81)
Figure 18: Summary of changes
New
For year ended Dec 31 2016A 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2017E 2018E
Revenue 25,647 30,045 31,431 32,406 30,045 31,156 32,129 0% 1% 1%
Cost of sales (18,622) (20,759) (21,153) (21,644) (20,759) (21,153) (21,644) 0% 0% 0%
Gross Profit 7,025 9,285 10,278 10,762 9,285 10,003 10,485 0% 3% 3%
SG&A (3,839) (4,064) (4,146) (4,152) (4,064) (4,146) (4,152) 0% 0% 0%
Other Income 229 226 228 228 226 228 228 0% 0% 0%
EBITDA 5,317 7,236 8,180 8,678 7,236 7,905 8,400 0% 3% 3%
Depreciation and Amortization (1,902) (1,788) (1,821) (1,840) (1,788) (1,821) (1,840) 0% 0% 0%
Operating Profit (EBIT) 3,415 5,448 6,359 6,838 5,448 6,085 6,560 0% 5% 4%
Net interest (650) (587) (563) (525) (588) (565) (528) 0% 0% -1%
Share of JCE/Associates (50) 170 177 186 170 177 186 0% 0% 0%
Pre-tax profit 2,158 5,227 5,974 6,499 5,062 5,697 6,218 3% 5% 5%
Income tax (897) (1,411) (1,613) (1,755) (1,367) (1,538) (1,679) 3% 5% 5%
Minority interests 64 76 87 95 74 83 91 NM 5% 5%
Net Profit 1,326 3,892 4,448 4,839 3,769 4,242 4,630 3% 5% 5%
EPS 0.20 0.60 0.68 0.74 0.58 0.65 0.71 3% 5% 5%
New
For year ended Dec 31 2016A 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E
Concrete
Capacity 35.1 38.8 42.4 46.0 38.8 42.4 46.0 0% 0% 0%
Sales volume 12.4 13.2 14.5 15.7 13.2 14.5 15.7 0% 0% 0%
ASP 365.9 376.9 384.4 392.1 376.9 384.4 392.1 0% 0% 0%
GP/cu.m 107.6 103.8 106.3 104.0 103.8 106.3 104.0 0% 0% 0%
Cement
Cement Capacity 81.3 83.3 85.3 85.3 83.3 85.3 85.3 0% 0% 0%
Blended sales volume 84.9 84.7 86.4 86.5 84.7 86.4 86.5 0% 0% 0%
Blended ASP 249 296 300 303 296.3 296.3 300.0 0% 1% 1%
Unit Gross Profit 67 94 101 105 93.5 98.0 102.3 0% 3% 3%
Unit SG&A 45.2 48.0 48.0 48.0 48.0 48.0 48.0 0% 0% 0%
Unit EBITDA 62.6 85.5 94.7 100.3 85.5 91.5 97.1 0% 3% 3%
Unit EBIT 40.2 64.3 73.6 79.0 64.3 70.4 75.8 0% 5% 4%
Unit Net Profit 15.6 46.0 51.5 55.9 44.5 49.1 53.5 3% 5% 5%
Old
Old
% chg
% chg
Source: Deutsche Bank
Valuation & risks
We value CRC based on 10x FY18 core PE, which is equivalent to its mid-cycle
average. This also implies 1.5x PB on 16.7% ROE which we believe is justified.
Risks: a slowdown in property starts and a breakdown of price discipline in the
South China markets.
8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 7
West China Cement (2233.HK, Buy, HKD2.04 -> HKD2.25)
Figure 19: Summary of changes
RMB mn New Old % chg
For year ended Dec 31 2016A 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E
Revenue 3,719 4,540 5,112 5,444 4,467 5,017 5,297 2% 2% 3%
Cost of sales (3,043) (3,365) (3,463) (3,593) (3,365) (3,448) (3,578) 0% 0% 0%
Gross Profit 677 1,175 1,649 1,851 1,102 1,568 1,720 7% 5% 8%
SG&A (285) (301) (334) (341) (301) (334) (341) 0% 0% 0%
Other Income (33) 304 176 190 226 176 190 35% 0% 0%
EBITDA 1,131 1,897 2,174 2,346 1,746 2,093 2,214 9% 4% 6%
Depreciation and Amortization (772) (719) (683) (646) (719) (683) (646) 0% 0% 0%
Operating Profit (EBIT) 359 1,179 1,491 1,700 1,027 1,410 1,568 15% 6% 8%
Net interest (249) (194) (133) (107) (196) (137) (112) -1% -3% -5%
Pre-tax profit 119 1,003 1,379 1,616 849 1,294 1,479 18% 7% 9%
Income tax (104) (271) (372) (436) (229) (349) (399) 18% 7% 9%
Minority interests (5) (11) (15) (18) (9) (14) (16) 18% 7% 9%
Net Profit 10 721 992 1,162 611 931 1,064 18% 7% 9%
EPS 0.002 0.13 0.18 0.21 0.11 0.17 0.20 18% 7% 9%
RMB/t New Old % chg
For year ended Dec 31 2016A 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E
Cement Capacity (mt) 29.2 29.2 29.2 29.2 29.2 29.2 29.2 0% 0% 0%
Cement & Clinker Sales volume (mt) 17.6 18.3 18.6 19.0 18.3 18.6 19.0 0% 0% 0%
Cement & Clinker ASP 206.9 247.6 250.8 257.6 243.6 244.0 249.8 2% 3% 3%
Unit Cement COGS 168.9 183.5 180.0 180.6 183.5 179.2 179.8 0% 0% 0%
Unit Cement Gross Profit 38.0 64.1 70.8 77.0 60.1 64.8 70.0 7% 9% 10%
Unit SG&A 16.1 16.4 18.0 18.0 16.4 18.0 18.0 0% 0% 0%
Unit EBITDA 64.1 103.5 117.1 123.7 95.2 112.8 116.8 9% 4% 6%
Unit EBIT 20.3 64.3 80.3 89.6 56.0 76.0 82.7 15% 6% 8%
Unit Financing cost 14.1 10.6 7.2 5.6 10.7 7.4 5.9 -1% -3% -5%
Unit Net Profit 0.6 39.3 53.4 61.3 33.3 50.1 56.1 18% 7% 9%
Aggregate Capacity (mt) 0.0 16.0 16.0 0.0 16.0 16.0 nm 0% 0%
Aggregate Sales Volume (mt) 0.0 6.1 8.0 0.0 6.1 8.0 nm 0% 0%
Aggregate ASP 100.0 75.0 70.0 100.0 80.0 70.0 0% -6% 0%
Unit Aggregate COGS 20.0 20.0 21.0 20.0 20.0 21.0 0% 0% 0%
Unit Aggregate Gross Profit 80.0 55.0 49.0 80.0 60.0 49.0 0% -8% 0% Source: Deutsche Bank
Valuation & risks
We value WCC using an EV/t at RMB400/t, reflecting a fair market price for
potential M&A. The target price also implies 1.4x P/B.
Risks: Price war by Conch, higher coal prices and slowdown in new project
starts.
8 January 2018
Construction Materials
China Cement
Page 8 Deutsche Bank AG/Hong Kong
Model updated:07 January 2018
Running the numbers
Asia
China
Construction Materials
West China Cement Reuters: 2233.HK Bloomberg: 2233 HK
Buy Price (5 Jan 18) HKD 1.25
Target Price HKD 2.25
52 Week range HKD 0.89 - 1.32
Market Cap (m) HKDm 6,776
USDm 867
Company Profile
West China Cement Limited is a leading producer of cement and clinker in North Western China, currently operating in Shaanxi and Xinjiang provinces. The company employs NSP technology in all of its production lines.
Price Performance
0.4
0.8
1.2
1.6
2.0
2.4
Jan 16Apr 16 Jul 16 Oct 16Jan 17Apr 17Jul 17 Oct 17
West China CementHANG SENG INDEX (Rebased)
Margin Trends
-100
1020304050
14 15 16 17E 18E 19E
EBITDA Margin EBIT Margin
Growth & Profitability
-10
-5
0
5
10
15
20
-20
-10
0
10
20
30
14 15 16 17E 18E 19E
Sales growth (LHS) ROE (RHS)
Solvency
0
5
10
15
20
-20
0
20
40
60
80
14 15 16 17E 18E 19E
Net debt/equity (LHS) Net interest cover (RHS)
Johnson Wan
+852 2203 6163 [email protected]
Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E
Financial Summary
DB EPS (CNY) 0.01 -0.03 0.03 0.11 0.18 0.21
Reported EPS (CNY) 0.01 -0.06 0.00 0.13 0.18 0.21
DPS (CNY) 0.00 0.00 0.00 0.05 0.07 0.10
BVPS (CNY) 1.1 1.3 1.1 1.2 1.4 1.5
Weighted average shares (m) 4,528 5,000 5,421 5,421 5,422 5,422
Average market cap (CNYm) 3,046 5,145 5,490 5,619 5,619 5,619
Enterprise value (CNYm) 6,417 8,568 8,167 7,192 5,897 4,850
Valuation Metrics P/E (DB) (x) 73.8 nm 29.6 9.7 5.7 4.8
P/E (Reported) (x) 84.9 nm 531.9 7.8 5.7 4.8
P/BV (x) 0.59 1.00 0.69 0.85 0.77 0.69
FCF Yield (%) 8.1 nm 12.3 19.4 26.7 24.5
Dividend Yield (%) 0.3 0.0 0.0 4.5 7.1 9.3
EV/Sales (x) 1.7 2.4 2.2 1.6 1.2 0.9
EV/EBITDA (x) 6.5 12.9 7.2 3.8 2.7 2.1
EV/EBIT (x) 18.0 nm 22.8 6.1 4.0 2.9
Income Statement (CNYm)
Sales revenue 3,883 3,501 3,719 4,540 5,112 5,444
Gross profit 598 463 677 1,175 1,649 1,851
EBITDA 984 664 1,131 1,897 2,174 2,346
Depreciation 626 703 772 719 683 646
Amortisation 0 0 0 0 0 0
EBIT 357 -38 359 1,179 1,491 1,700
Net interest income(expense) -222 -218 -249 -194 -133 -107
Associates/affiliates 0 0 10 19 21 23
Exceptionals/extraordinaries 0 0 0 0 0 0
Other pre-tax income/(expense) 0 0 0 0 0 0
Profit before tax 135 -257 110 984 1,358 1,593
Income tax expense 96 51 104 271 372 436
Minorities 4 2 5 11 15 18
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 36 -309 10 721 992 1,162
DB adjustments (including dilution) 5 157 175 -139 0 0
DB Net profit 41 -152 186 582 992 1,162
Cash Flow (CNYm)
Cash flow from operations 816 211 1,051 1,392 1,799 1,574
Net Capex -568 -336 -377 -300 -300 -200
Free cash flow 248 -125 674 1,092 1,499 1,374
Equity raised/(bought back) -22 1,204 0 0 0 0
Dividends paid -91 -9 -1 0 -252 -397
Net inc/(dec) in borrowings 3,479 485 1,315 -401 -848 0
Other investing/financing cash flows -3,624 -1,595 -1,185 14 29 56
Net cash flow -11 -41 802 705 428 1,034
Change in working capital 179 -391 93 -27 182 -155
Balance Sheet (CNYm)
Cash and other liquid assets 708 528 1,346 2,070 2,511 3,553
Tangible fixed assets 8,071 8,257 7,564 7,171 6,812 6,391
Goodwill/intangible assets 800 1,030 998 982 966 950
Associates/investments 0 0 41 31 52 75
Other assets 1,189 1,568 1,233 1,626 1,556 1,791
Total assets 10,768 11,382 11,182 11,879 11,898 12,761
Interest bearing debt 4,033 3,904 4,013 3,612 2,765 2,765
Other liabilities 1,719 1,575 1,255 1,621 1,733 1,814
Total liabilities 5,752 5,479 5,268 5,233 4,498 4,578
Shareholders' equity 4,971 5,856 5,863 6,584 7,323 8,089
Minorities 46 47 51 62 77 95
Total shareholders' equity 5,016 5,904 5,913 6,646 7,400 8,183
Net debt 3,325 3,376 2,667 1,542 253 -789
Key Company Metrics
Sales growth (%) -6.8 -9.8 6.2 22.1 12.6 6.5
DB EPS growth (%) -86.4 na na 213.3 70.4 17.2
EBITDA Margin (%) 25.3 19.0 30.4 41.8 42.5 43.1
EBIT Margin (%) 9.2 -1.1 9.6 26.0 29.2 31.2
Payout ratio (%) 25.0 nm 0.0 35.0 40.0 45.0
ROE (%) 0.7 -5.7 0.2 11.6 14.3 15.1
Capex/sales (%) 15.0 10.0 10.2 6.6 5.9 3.7
Capex/depreciation (x) 0.9 0.5 0.5 0.4 0.4 0.3
Net debt/equity (%) 66.3 57.2 45.1 23.2 3.4 -9.6
Net interest cover (x) 1.6 nm 1.4 6.1 11.2 16.0
Source: Company data, Deutsche Bank estimates
8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 9
Model updated:07 January 2018
Running the numbers
Asia
Hong Kong
Construction Materials
CR Cement Reuters: 1313.HK Bloomberg: 1313 HK
Buy Price (5 Jan 18) HKD 5.66
Target Price HKD 6.81
52 Week range HKD 2.97 - 5.66
Market Cap (m) HKDm 36,976
USDm 4,729
Company Profile
China Resources Cement Holdings Limited, through its subsidiaries, produces, distributes and sells cement, clinker and concrete.
Price Performance
1.0
2.0
3.0
4.0
5.0
6.0
Jan 16Apr 16 Jul 16 Oct 16Jan 17Apr 17Jul 17 Oct 17
CR Cement HANG SENG INDEX (Rebased)
Margin Trends
8
12
16
20
24
28
14 15 16 17E 18E 19E
EBITDA Margin EBIT Margin
Growth & Profitability
0
5
10
15
20
-20
-10
0
10
20
14 15 16 17E 18E 19E
Sales growth (LHS) ROE (RHS)
Solvency
02468101214
010203040506070
14 15 16 17E 18E 19E
Net debt/equity (LHS) Net interest cover (RHS)
Johnson Wan
+852 2203 6163 [email protected]
Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E
Financial Summary
DB EPS (HKD) 0.67 0.31 0.25 0.57 0.68 0.74
Reported EPS (HKD) 0.64 0.16 0.20 0.60 0.68 0.74
DPS (HKD) 0.17 0.08 0.09 0.30 0.37 0.44
BVPS (HKD) 4.3 4.1 4.0 4.3 4.6 4.9
Weighted average shares (m) 6,533 6,533 6,533 6,533 6,533 6,533
Average market cap (HKDm) 35,007 26,577 17,578 36,976 36,976 36,976
Enterprise value (HKDm) 46,706 36,705 25,714 43,066 42,313 39,814
Valuation Metrics P/E (DB) (x) 8.0 13.2 10.6 9.9 8.3 7.6
P/E (Reported) (x) 8.3 26.2 13.3 9.5 8.3 7.6
P/BV (x) 1.16 0.59 0.76 1.32 1.23 1.16
FCF Yield (%) 10.1 8.5 13.2 9.9 7.7 13.6
Dividend Yield (%) 3.2 2.0 3.3 5.3 6.6 7.9
EV/Sales (x) 1.4 1.4 1.0 1.4 1.3 1.2
EV/EBITDA (x) 5.6 7.7 4.8 6.0 5.2 4.6
EV/EBIT (x) 7.2 13.2 7.5 7.9 6.7 5.8
Income Statement (HKDm)
Sales revenue 32,669 26,779 25,647 30,045 31,431 32,406
Gross profit 10,225 6,417 7,025 9,285 10,278 10,762
EBITDA 8,384 4,744 5,317 7,236 8,180 8,678
Depreciation 1,918 1,967 1,902 1,788 1,821 1,840
Amortisation 0 0 0 0 0 0
EBIT 6,467 2,777 3,415 5,448 6,359 6,838
Net interest income(expense) -596 -504 -650 -587 -563 -525
Associates/affiliates 116 -244 -50 170 177 186
Exceptionals/extraordinaries 0 0 0 0 0 0
Other pre-tax income/(expense) -232 -1,045 -557 197 0 0
Profit before tax 5,754 984 2,158 5,227 5,974 6,499
Income tax expense 1,631 48 897 1,411 1,613 1,755
Minorities -83 -78 -64 -76 -87 -95
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 4,206 1,015 1,326 3,892 4,448 4,839
DB adjustments (including dilution) 166 994 326 -144 0 0
DB Net profit 4,373 2,009 1,651 3,748 4,448 4,839
Cash Flow (HKDm)
Cash flow from operations 6,859 4,834 4,112 5,403 5,860 6,341
Net Capex -3,307 -2,586 -1,789 -1,725 -3,005 -1,296
Free cash flow 3,552 2,247 2,323 3,678 2,856 5,046
Equity raised/(bought back) 0 0 0 0 0 0
Dividends paid -915 -1,045 -229 -1,946 -2,446 -2,903
Net inc/(dec) in borrowings -142 -1,193 -639 -871 202 -2,418
Other investing/financing cash flows -1,169 -2,219 -50 67 79 76
Net cash flow 1,326 -2,210 1,406 929 691 -200
Change in working capital 376 1,573 -170 36 -65 19
Balance Sheet (HKDm)
Cash and other liquid assets 4,151 1,955 3,160 4,090 4,780 4,580
Tangible fixed assets 33,272 31,596 29,784 29,753 30,969 30,455
Goodwill/intangible assets 6,733 7,291 6,016 5,983 5,951 5,920
Associates/investments 4,970 7,271 6,810 6,979 7,157 7,343
Other assets 8,412 6,104 6,387 7,191 7,416 7,596
Total assets 57,537 54,217 52,157 53,996 56,272 55,895
Interest bearing debt 20,284 18,925 17,860 16,990 17,192 14,774
Other liabilities 8,538 8,306 8,044 8,885 9,044 9,244
Total liabilities 28,822 27,231 25,905 25,874 26,236 24,018
Shareholders' equity 28,180 26,557 26,007 27,953 29,954 31,890
Minorities 535 429 245 169 82 -13
Total shareholders' equity 28,715 26,986 26,252 28,122 30,036 31,877
Net debt 16,133 16,970 14,700 12,900 12,412 10,194
Key Company Metrics
Sales growth (%) 11.3 -18.0 -4.2 17.1 4.6 3.1
DB EPS growth (%) 32.7 -54.1 -17.8 127.0 18.7 8.8
EBITDA Margin (%) 25.7 17.7 20.7 24.1 26.0 26.8
EBIT Margin (%) 19.8 10.4 13.3 18.1 20.2 21.1
Payout ratio (%) 26.4 51.5 44.3 50.0 55.0 60.0
ROE (%) 15.9 3.7 5.0 14.4 15.4 15.6
Capex/sales (%) 10.3 9.7 7.1 5.7 9.6 4.0
Capex/depreciation (x) 1.8 1.3 1.0 1.0 1.6 0.7
Net debt/equity (%) 56.2 62.9 56.0 45.9 41.3 32.0
Net interest cover (x) 10.8 5.5 5.3 9.3 11.3 13.0
Source: Company data, Deutsche Bank estimates
8 January 2018
Construction Materials
China Cement
Page 10 Deutsche Bank AG/Hong Kong
Model updated:07 January 2018
Running the numbers
Asia
China
Construction Materials
Conch Venture Reuters: 0586.HK Bloomberg: 586 HK
Buy Price (5 Jan 18) HKD 19.18
Target Price HKD 25.75
52 Week range HKD 13.74 - 19.42
Market Cap (m) HKDm 34,615
USDm 4,427
Company Profile
Conch Venture is a leading provider of energy preservation and environmental protection solutions. It is a major shareholder of Conch Holdings, the parent of Conch Cement and Conch Profile.
Price Performance
8
12
16
20
24
Jan 16Apr 16 Jul 16 Oct 16Jan 17Apr 17 Jul 17 Oct 17
Conch Venture HANG SENG INDEX (Rebased)
Margin Trends
24283236404448
14 15 16 17E 18E 19E
EBITDA Margin EBIT Margin
Growth & Profitability
0
5
10
15
20
25
-10
0
10
20
30
40
14 15 16 17E 18E 19E
Sales growth (LHS) ROE (RHS)
Solvency
-14-12-10-8-6-4-20
14 15 16 17E 18E 19E
Net debt/equity (LHS) Net interest cover (RHS)
Johnson Wan
+852 2203 6163 [email protected]
Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E
Financial Summary
DB EPS (CNY) 1.24 1.08 1.10 1.85 2.11 2.45
Reported EPS (CNY) 1.24 1.08 1.10 1.85 2.11 2.45
DPS (CNY) 0.40 0.30 0.30 0.64 0.68 0.74
BVPS (CNY) 8.2 9.0 9.8 11.4 12.8 14.6
Weighted average shares (m) 1,805 1,805 1,805 1,805 1,805 1,805
Average market cap (CNYm) 25,644 25,951 22,420 28,706 28,706 28,706
Enterprise value (CNYm) 12,515 11,983 7,675 12,137 10,642 9,135
Valuation Metrics P/E (DB) (x) 11.5 13.3 11.3 8.6 7.5 6.5
P/E (Reported) (x) 11.5 13.3 11.3 8.6 7.5 6.5
P/BV (x) 1.63 1.45 1.20 1.40 1.24 1.09
FCF Yield (%) 0.1 nm nm nm nm nm
Dividend Yield (%) 2.8 2.1 2.4 4.0 4.3 4.6
EV/Sales (x) 7.2 5.8 3.8 4.5 3.0 2.2
EV/EBITDA (x) 24.6 17.5 9.9 13.4 7.9 4.9
EV/EBIT (x) 27.6 19.5 11.0 14.9 8.6 5.3
Income Statement (CNYm)
Sales revenue 1,748 2,057 2,032 2,699 3,564 4,216
Gross profit 574 782 797 964 1,454 2,009
EBITDA 509 686 776 903 1,345 1,876
Depreciation 55 70 78 91 113 141
Amortisation 0 0 0 0 0 0
EBIT 454 616 699 812 1,232 1,735
Net interest income(expense) 45 71 48 72 68 65
Associates/affiliates 1,980 1,540 1,536 2,878 3,053 3,326
Exceptionals/extraordinaries 0 0 0 0 0 0
Other pre-tax income/(expense) 0 0 0 0 0 0
Profit before tax 2,480 2,227 2,282 3,763 4,353 5,127
Income tax expense 107 167 154 183 269 372
Minorities 134 115 147 247 282 328
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 2,239 1,944 1,981 3,333 3,803 4,426
DB adjustments (including dilution) 0 0 0 0 0 0
DB Net profit 2,239 1,944 1,981 3,333 3,803 4,426
Cash Flow (CNYm)
Cash flow from operations 337 65 46 -21 341 320
Net Capex -318 -88 -226 -317 -535 -655
Free cash flow 19 -23 -180 -338 -194 -335
Equity raised/(bought back) 0 0 0 0 0 0
Dividends paid -357 -577 -467 -541 -1,151 -1,221
Net inc/(dec) in borrowings 40 1,130 117 438 -236 241
Other investing/financing cash flows -1,343 -255 363 1,224 1,290 1,396
Net cash flow -1,641 275 -167 782 -291 80
Change in working capital -121 -500 -591 -741 -735 -1,184
Balance Sheet (CNYm)
Cash and other liquid assets 2,708 2,332 2,166 2,947 2,656 2,736
Tangible fixed assets 1,008 998 1,030 1,198 1,355 1,502
Goodwill/intangible assets 249 353 549 607 872 1,239
Associates/investments 11,668 12,656 13,773 15,500 17,332 19,328
Other assets 1,574 2,160 2,695 3,572 4,598 5,858
Total assets 17,207 18,500 20,213 23,824 26,813 30,662
Interest bearing debt 800 530 595 1,033 797 1,037
Other liabilities 1,106 1,220 1,271 1,407 1,698 1,774
Total liabilities 1,906 1,750 1,866 2,439 2,495 2,811
Shareholders' equity 14,854 16,258 17,747 20,538 23,190 26,395
Minorities 447 491 599 846 1,128 1,456
Total shareholders' equity 15,300 16,749 18,347 21,385 24,318 27,851
Net debt -1,908 -1,802 -1,571 -1,915 -1,859 -1,699
Key Company Metrics
Sales growth (%) 9.8 17.7 -1.2 32.8 32.0 18.3
DB EPS growth (%) 2.0 -13.1 1.9 68.3 14.1 16.4
EBITDA Margin (%) 29.1 33.3 38.2 33.5 37.7 44.5
EBIT Margin (%) 26.0 29.9 34.4 30.1 34.6 41.2
Payout ratio (%) 32.2 27.8 27.3 34.5 32.1 30.1
ROE (%) 19.5 12.5 11.6 17.4 17.4 17.9
Capex/sales (%) 18.2 7.2 11.1 11.7 15.0 15.5
Capex/depreciation (x) 5.7 2.1 2.9 3.5 4.7 4.6
Net debt/equity (%) -12.5 -10.8 -8.6 -9.0 -7.6 -6.1
Net interest cover (x) nm nm nm nm nm nm
Source: Company data, Deutsche Bank estimates
8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 11
Model updated:07 January 2018
Running the numbers
Asia
China
Construction Materials
Anhui Conch Cement Reuters: 600585.SS Bloomberg: 600585 CG
Buy Price (5 Jan 18) CNY 32.66
Target Price CNY 38.30
52 Week range CNY 17.45 - 32.66
Market Cap (m) CNYm 115,383
USDm 17,794
Company Profile
Anhui Conch Cement Company Limited produces and sells ordinary portland cement, portland blast furnace slag cement, compound cement, and commercial clinker. The company sells its products under the Conch, Hailuo and Huangshan trademarks.
Price Performance
12
16
20
24
28
32
36
Jan 16Apr 16 Jul 16 Oct 16Jan 17Apr 17 Jul 17 Oct 17
Anhui Conch CementHANG SENG INDEX (Rebased)
Margin Trends
20
24
28
32
36
40
14 15 16 17E 18E 19E
EBITDA Margin EBIT Margin
Growth & Profitability
0
5
10
15
20
25
-20
-10
0
10
20
30
40
14 15 16 17E 18E 19E
Sales growth (LHS) ROE (RHS)
Solvency
050100150200250300350
-25-20-15-10-505
10
14 15 16 17E 18E 19E
Net debt/equity (LHS) Net interest cover (RHS)
Johnson Wan
+852 2203 6163 [email protected]
Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E
Financial Summary
DB EPS (CNY) 2.07 1.42 1.62 3.01 3.19 3.48
Reported EPS (CNY) 2.07 1.42 1.62 3.01 3.19 3.48
DPS (CNY) 0.65 0.43 0.50 1.05 1.28 1.57
BVPS (CNY) 12.4 13.2 14.4 16.4 18.3 20.2
Weighted average shares (m) 5,299 5,299 5,299 5,299 5,299 5,299
Average market cap (CNYm) 89,223 108,787 85,202 115,383 115,383 115,383
Enterprise value (CNYm) 91,786 110,672 83,015 102,628 97,116 91,277
Valuation Metrics P/E (DB) (x) 8.1 14.4 9.9 10.8 10.2 9.4
P/E (Reported) (x) 8.1 14.4 9.9 10.8 10.2 9.4
P/BV (x) 1.78 1.29 1.18 2.00 1.79 1.62
FCF Yield (%) 10.7 3.6 8.6 9.4 7.1 8.1
Dividend Yield (%) 3.9 2.1 3.1 3.2 3.9 4.8
EV/Sales (x) 1.5 2.2 1.5 1.4 1.2 1.1
EV/EBITDA (x) 4.7 7.3 4.9 3.9 3.5 3.1
EV/EBIT (x) 5.8 10.4 6.8 4.7 4.2 3.7
Income Statement (CNYm)
Sales revenue 60,759 50,976 55,932 73,683 79,375 84,114
Gross profit 20,198 13,709 17,536 26,047 29,326 31,364
EBITDA 19,521 15,146 16,878 26,562 27,778 29,812
Depreciation 3,828 4,459 4,753 4,568 4,736 5,000
Amortisation 0 0 0 0 0 0
EBIT 15,693 10,686 12,125 21,994 23,041 24,812
Net interest income(expense) -707 -563 -329 -66 205 513
Associates/affiliates -59 -38 -97 -2 -1 1
Exceptionals/extraordinaries 0 0 0 0 0 0
Other pre-tax income/(expense) 0 0 0 0 0 0
Profit before tax 14,927 10,086 11,699 21,926 23,245 25,326
Income tax expense 3,360 2,440 2,703 5,153 5,463 5,952
Minorities 586 106 423 805 854 930
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 10,981 7,539 8,574 15,968 16,929 18,444
DB adjustments (including dilution) 0 0 0 0 0 0
DB Net profit 10,981 7,539 8,574 15,968 16,929 18,444
Cash Flow (CNYm)
Cash flow from operations 16,525 8,944 12,191 23,939 21,942 23,630
Net Capex -6,955 -5,075 -4,865 -7,628 -9,628 -9,628
Free cash flow 9,570 3,869 7,326 16,311 12,314 14,002
Equity raised/(bought back) 0 0 0 0 0 0
Dividends paid -2,104 -3,918 -2,559 -5,589 -6,772 -8,300
Net inc/(dec) in borrowings 1,041 2,900 5,705 -1,971 -2,209 -1,442
Other investing/financing cash flows -2,489 -11,057 -8,978 -2,453 -172 238
Net cash flow 6,018 -8,206 1,494 6,298 3,161 4,498
Change in working capital 2,130 -172 -1,275 3,249 247 323
Balance Sheet (CNYm)
Cash and other liquid assets 14,152 14,471 15,586 24,990 29,148 34,475
Tangible fixed assets 62,469 64,108 64,661 67,358 71,896 76,180
Goodwill/intangible assets 7,539 8,325 8,783 9,147 9,500 9,844
Associates/investments 6,580 6,225 6,251 6,249 6,249 6,249
Other assets 11,514 12,652 14,233 16,978 18,095 18,907
Total assets 102,253 105,781 109,514 124,722 134,887 145,655
Interest bearing debt 19,916 19,185 15,981 14,010 11,801 10,359
Other liabilities 13,110 13,052 13,556 19,549 20,913 22,048
Total liabilities 33,026 32,237 29,536 33,559 32,714 32,407
Shareholders' equity 65,850 70,148 76,309 86,688 96,845 106,990
Minorities 3,377 3,397 3,669 4,474 5,328 6,258
Total shareholders' equity 69,227 73,545 79,978 91,162 102,173 113,248
Net debt 5,765 4,713 395 -10,980 -17,347 -24,115
Key Company Metrics
Sales growth (%) 9.9 -16.1 9.7 31.7 7.7 6.0
DB EPS growth (%) 17.0 -31.3 13.7 86.2 6.0 8.9
EBITDA Margin (%) 32.1 29.7 30.2 36.0 35.0 35.4
EBIT Margin (%) 25.8 21.0 21.7 29.8 29.0 29.5
Payout ratio (%) 31.4 30.2 30.9 35.0 40.0 45.0
ROE (%) 18.1 11.1 11.7 19.6 18.4 18.1
Capex/sales (%) 11.5 10.1 8.9 10.4 12.1 11.4
Capex/depreciation (x) 1.8 1.2 1.0 1.7 2.0 1.9
Net debt/equity (%) 8.3 6.4 0.5 -12.0 -17.0 -21.3
Net interest cover (x) 22.2 19.0 36.9 330.8 nm nm
Source: Company data, Deutsche Bank estimates
8 January 2018
Construction Materials
China Cement
Page 12 Deutsche Bank AG/Hong Kong
Model updated:07 January 2018
Running the numbers
Asia
China
Construction Materials
Anhui Conch Cement Reuters: 0914.HK Bloomberg: 914 HK
Buy Price (5 Jan 18) HKD 40.25
Target Price HKD 46.00
52 Week range HKD 21.75 - 40.25
Market Cap (m) HKDm 142,198
USDm 18,186
Company Profile
Anhui Conch Cement Company Limited is China's largest cement producer, with annual output of 300m tonnes. The company's major products are 32.5- and 42.5-grade Portland cement and clinker. It sells its products both domestically and internationally. Anhui Conch Cement Company Limited produces and sells ordinary portland cement, portland blast-furnace slag cement, compound cement and commercial clinker. The company sells its products under the Conch, Hailuo and Huangshan trademarks. Price Performance
10
20
30
40
50
Jan 16Apr 16 Jul 16 Oct 16Jan 17Apr 17 Jul 17 Oct 17
Anhui Conch CementHANG SENG INDEX (Rebased)
Margin Trends
20
24
28
32
36
40
14 15 16 17E 18E 19E
EBITDA Margin EBIT Margin
Growth & Profitability
0
5
10
15
20
25
-20
-10
0
10
20
30
40
14 15 16 17E 18E 19E
Sales growth (LHS) ROE (RHS)
Solvency
050100150200250300350
-25-20-15-10-505
10
14 15 16 17E 18E 19E
Net debt/equity (LHS) Net interest cover (RHS)
Johnson Wan
+852 2203 6163 [email protected]
Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E
Financial Summary
DB EPS (CNY) 2.07 1.42 1.62 3.01 3.19 3.48
Reported EPS (CNY) 2.07 1.42 1.62 3.01 3.19 3.48
DPS (CNY) 0.65 0.43 0.50 1.05 1.28 1.57
BVPS (CNY) 12.4 13.2 14.4 16.4 18.3 20.2
Weighted average shares (m) 5,299 5,299 5,299 5,299 5,299 5,299
Average market cap (CNYm) 111,352 109,184 89,344 117,922 117,922 117,922
Enterprise value (CNYm) 113,914 111,069 87,157 105,167 99,654 93,815
Valuation Metrics P/E (DB) (x) 10.1 14.5 10.4 11.1 10.4 9.6
P/E (Reported) (x) 10.1 14.5 10.4 11.1 10.4 9.6
P/BV (x) 1.76 1.24 1.25 2.04 1.83 1.65
FCF Yield (%) 8.6 3.5 8.2 9.2 7.0 7.9
Dividend Yield (%) 3.1 2.1 3.0 3.2 3.8 4.7
EV/Sales (x) 1.9 2.2 1.6 1.4 1.3 1.1
EV/EBITDA (x) 5.8 7.3 5.2 4.0 3.6 3.1
EV/EBIT (x) 7.3 10.4 7.2 4.8 4.3 3.8
Income Statement (CNYm)
Sales revenue 60,759 50,976 55,932 73,683 79,375 84,114
Gross profit 20,198 13,709 17,536 26,047 29,326 31,364
EBITDA 19,521 15,146 16,878 26,562 27,778 29,812
Depreciation 3,828 4,459 4,753 4,568 4,736 5,000
Amortisation 0 0 0 0 0 0
EBIT 15,693 10,686 12,125 21,994 23,041 24,812
Net interest income(expense) -707 -563 -329 -66 205 513
Associates/affiliates -59 -38 -97 -2 -1 1
Exceptionals/extraordinaries 0 0 0 0 0 0
Other pre-tax income/(expense) 0 0 0 0 0 0
Profit before tax 14,927 10,086 11,699 21,926 23,245 25,326
Income tax expense 3,360 2,440 2,703 5,153 5,463 5,952
Minorities 586 106 423 805 854 930
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 10,981 7,539 8,574 15,968 16,929 18,444
DB adjustments (including dilution) 0 0 0 0 0 0
DB Net profit 10,981 7,539 8,574 15,968 16,929 18,444
Cash Flow (CNYm)
Cash flow from operations 16,525 8,944 12,191 23,939 21,942 23,630
Net Capex -6,955 -5,075 -4,865 -7,628 -9,628 -9,628
Free cash flow 9,570 3,869 7,326 16,311 12,314 14,002
Equity raised/(bought back) 0 0 0 0 0 0
Dividends paid -2,104 -3,918 -2,559 -5,589 -6,772 -8,300
Net inc/(dec) in borrowings 1,041 2,900 5,705 -1,971 -2,209 -1,442
Other investing/financing cash flows -2,489 -11,057 -8,978 -2,453 -172 238
Net cash flow 6,018 -8,206 1,494 6,298 3,161 4,498
Change in working capital 2,130 -172 -1,275 3,249 247 323
Balance Sheet (CNYm)
Cash and other liquid assets 14,152 14,471 15,586 24,990 29,148 34,475
Tangible fixed assets 62,469 64,108 64,661 67,358 71,896 76,180
Goodwill/intangible assets 7,539 8,325 8,783 9,147 9,500 9,844
Associates/investments 6,580 6,225 6,251 6,249 6,249 6,249
Other assets 11,514 12,652 14,233 16,978 18,095 18,907
Total assets 102,253 105,781 109,514 124,722 134,887 145,655
Interest bearing debt 19,916 19,185 15,981 14,010 11,801 10,359
Other liabilities 13,110 13,052 13,556 19,549 20,913 22,048
Total liabilities 33,026 32,237 29,536 33,559 32,714 32,407
Shareholders' equity 65,850 70,148 76,309 86,688 96,845 106,990
Minorities 3,377 3,397 3,669 4,474 5,328 6,258
Total shareholders' equity 69,227 73,545 79,978 91,162 102,173 113,248
Net debt 5,765 4,713 395 -10,980 -17,347 -24,115
Key Company Metrics
Sales growth (%) 9.9 -16.1 9.7 31.7 7.7 6.0
DB EPS growth (%) 17.0 -31.3 13.7 86.2 6.0 8.9
EBITDA Margin (%) 32.1 29.7 30.2 36.0 35.0 35.4
EBIT Margin (%) 25.8 21.0 21.7 29.8 29.0 29.5
Payout ratio (%) 31.4 30.2 30.9 35.0 40.0 45.0
ROE (%) 18.1 11.1 11.7 19.6 18.4 18.1
Capex/sales (%) 11.5 10.1 8.9 10.4 12.1 11.4
Capex/depreciation (x) 1.8 1.2 1.0 1.7 2.0 1.9
Net debt/equity (%) 8.3 6.4 0.5 -12.0 -17.0 -21.3
Net interest cover (x) 22.2 19.0 36.9 330.8 nm nm
Source: Company data, Deutsche Bank estimates
8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 13
Appendix 1
Important Disclosures
*Other information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
Anhui Conch Cement 0914.HK 40.25 (HKD) 5 Jan 18 6,9,13,14,15
Anhui Conch Cement 600585.SS 32.66 (CNY) 5 Jan 18 NA
West China Cement 2233.HK 1.25 (HKD) 5 Jan 18 13,14
CR Cement 1313.HK 5.66 (HKD) 5 Jan 18 NA
Conch Venture 0586.HK 19.18 (HKD) 5 Jan 18 14,15 Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
Important Disclosures Required by U.S. Regulators
Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.
6. Deutsche Bank and/or its affiliate(s) owns one percent or more of a class of common equity securities of this company calculated under computational methods required by US law.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.
15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.
Important Disclosures Required by Non-U.S. Regulators
Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.
6. Deutsche Bank and/or its affiliate(s) owns one percent or more of a class of common equity securities of this company calculated under computational methods required by US law.
9. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by India law.
13. As of the end of the preceding week, Deutsche Bank and/or its affiliate(s) owns one percent or more of a class of common equity securities of this company.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Johnson Wan
8 January 2018
Construction Materials
China Cement
Page 14 Deutsche Bank AG/Hong Kong
Historical recommendations and target price: Anhui Conch Cement (0914.HK) (as of 1/5/2018)
12
34 5
6 7 8
9 10 11
12 13
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
1. 07/03/2016: Hold, Target Price Change HKD17.03 Johnson Wan 8. 27/10/2016: Buy, Target Price Change HKD27.20 Johnson Wan
2. 31/03/2016: Hold, Target Price Change HKD23.00 Johnson Wan 9. 27/02/2017: Buy, Target Price Change HKD34.80 Johnson Wan
3. 10/05/2016: Upgrade to Buy, Target Price Change HKD24.40 Johnson Wan
10. 23/03/2017: Buy, Target Price Change HKD35.30 Johnson Wan
4. 13/07/2016: Buy, Target Price Change HKD21.40 Johnson Wan 11. 17/07/2017: Buy, Target Price Change HKD36.10 Johnson Wan
5. 22/08/2016: Buy, Target Price Change HKD25.60 Johnson Wan 12. 19/09/2017: Buy, Target Price Change HKD37.00 Johnson Wan
6. 05/09/2016: Buy, Target Price Change HKD26.00 Johnson Wan 13. 17/10/2017: Buy, Target Price Change HKD40.00 Johnson Wan
7. 05/10/2016: Buy, Target Price Change HKD27.00 Johnson Wan
Historical recommendations and target price: Anhui Conch Cement (600585.SS) (as of 1/5/2018)
1 23
45 6 7
89
1011 12
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 15
1. 07/03/2016: Downgrade to Hold, Target Price Change CNY14.28 Johnson Wan
7. 05/10/2016: Buy, Target Price Change CNY23.40 Johnson Wan
2. 31/03/2016: Hold, Target Price Change CNY19.10 Johnson Wan 8. 27/02/2017: Buy, Target Price Change CNY32.20 Johnson Wan
3. 10/05/2016: Upgrade to Buy, Target Price Change CNY20.50 Johnson Wan
9. 21/04/2017: Buy, Target Price Change CNY32.70 Johnson Wan
4. 13/07/2016: Buy, Target Price Change CNY19.10 Johnson Wan 10. 17/07/2017: Buy, Target Price Change CNY32.90 Johnson Wan
5. 22/08/2016: Buy, Target Price Change CNY22.30 Johnson Wan 11. 19/09/2017: Buy, Target Price Change CNY33.60 Johnson Wan
6. 05/09/2016: Buy, Target Price Change CNY22.50 Johnson Wan 12. 17/10/2017: Buy, Target Price Change CNY34.80 Johnson Wan
Historical recommendations and target price: West China Cement (2233.HK) (as of 1/5/2018)
12
3
4
5
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
1. 03/07/2016: Buy, Target Price Change HKD1.15 Johnson Wan 4. 20/08/2017: Buy, Target Price Change HKD1.70 Johnson Wan
2. 27/02/2017: Buy, Target Price Change HKD1.38 Johnson Wan 5. 19/09/2017: Buy, Target Price Change HKD2.04 Johnson Wan
3. 21/04/2017: Buy, Target Price Change HKD1.55 Johnson Wan
8 January 2018
Construction Materials
China Cement
Page 16 Deutsche Bank AG/Hong Kong
Historical recommendations and target price: CR Cement (1313.HK) (as of 1/5/2018)
12 3
4
56
7
8 9 10
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
1. 07/03/2016: Upgrade to Buy, Target Price Change HKD3.48 Johnson Wan
6. 14/03/2017: Buy, Target Price Change HKD5.26 Johnson Wan
2. 13/04/2016: Buy, Target Price Change HKD3.36 Johnson Wan 7. 13/07/2017: Buy, Target Price Change HKD5.25 Peng Xie
3. 13/07/2016: Buy, Target Price Change HKD3.35 Johnson Wan 8. 09/08/2017: Buy, Target Price Change HKD6.03 Johnson Wan
4. 16/08/2016: Buy, Target Price Change HKD3.70 Johnson Wan 9. 19/09/2017: Buy, Target Price Change HKD6.15 Johnson Wan
5. 27/02/2017: Buy, Target Price Change HKD4.50 Johnson Wan 10. 17/10/2017: Buy, Target Price Change HKD6.49 Johnson Wan
8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 17
Historical recommendations and target price: Conch Venture (0586.HK) (as of 1/5/2018)
1
2
34 5 6 7 8 9 10
11
0.00
5.00
10.00
15.00
20.00
25.00
Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
1. 07/03/2016: Buy, Target Price Change HKD16.00 Johnson Wan 7. 27/02/2017: Buy, Target Price Change HKD21.04 Johnson Wan
2. 13/04/2016: Buy, Target Price Change HKD17.25 Johnson Wan 8. 17/07/2017: Buy, Target Price Change HKD20.77 Johnson Wan
3. 10/05/2016: Buy, Target Price Change HKD19.03 Johnson Wan 9. 19/09/2017: Buy, Target Price Change HKD22.03 Johnson Wan
4. 13/07/2016: Buy, Target Price Change HKD17.11 Johnson Wan 10. 17/10/2017: Buy, Target Price Change HKD23.52 Johnson Wan
5. 05/09/2016: Buy, Target Price Change HKD19.94 Johnson Wan 11. 08/12/2017: Buy, Target Price Change HKD23.45 Johnson Wan
6. 05/10/2016: Buy, Target Price Change HKD20.17 Johnson Wan
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.
Newly issued research recommendations and target prices supersede previously published research.
57 %
33 %
10 %17 % 18 % 13 %0
100
200
300
400
500
600
Buy Hold Sell
Asia-Pacific Universe
Companies Covered Cos. w/ Banking Relationship
8 January 2018
Construction Materials
China Cement
Page 18 Deutsche Bank AG/Hong Kong
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8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 19
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8 January 2018
Construction Materials
China Cement
Page 20 Deutsche Bank AG/Hong Kong
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8 January 2018
Construction Materials
China Cement
Deutsche Bank AG/Hong Kong Page 21
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Copyright © 2018 Deutsche Bank AG
David Folkerts-Landau Group Chief Economist and Global Head of Research
Raj Hindocha Global Chief Operating Officer
Research
Michael Spencer Head of APAC Research
Global Head of Economics
Steve Pollard Head of Americas Research
Global Head of Equity Research
Anthony Klarman Global Head of Debt Research
Paul Reynolds Head of EMEA
Equity Research
Dave Clark Head of APAC
Equity Research
Pam Finelli Global Head of
Equity Derivatives Research
Andreas Neubauer Head of Research - Germany
Spyros Mesomeris Global Head of Quantitative
and QIS Research
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