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BBMG (2009.HK): Weaker Cement Prices, TP Cut to HK$7.20 Cement Sector 28 April 2014

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BBMG (2009.HK): Weaker Cement Prices, TP Cut to HK$7.20 Cement Sector 28 April 2014 BBMG (2009.HK): Weaker Cement Prices, TP Cut to HK$7.20 Cement Sector 28 April 2014 What’s new. We dialled into BBMG’s 1Q14 analyst call. The company Target Price HK$7.20 released unaudited 1Q14 results last Friday after the market close. EPS was 12m Rating Buy RMB5 fen and net profit was RMB214m in 1Q14 vs. a net loss of RMB61m in (24% upside) 1Q14. Revenue increased 20% y/y to RMB9,306m due to a substantial increase in booked revenue. Price Chart Cement. The company’s shipments grew 21% y/y in 1Q14, while production (HK$) growth was flat in the Beijing-Tianjin-Hebei (BTH) region. This suggests 7.50 further market-share expansion for BBMG amid capacity shutdowns. ASP 7.00 6.50 dipped 10% y/y to RMB212/ton, below expectations, due to keen competition. 6.00 1Q14 GP/ton improved by RMB12/ton y/y to RMB20/ton amid soft coal prices 5.50 but net profit per ton remained negative, though the loss narrowed y/y. ASP is 5.00 expected to increase in 2Q14 due to seasonal factors, but we expect a y/y 4.50 decrease following the worse-than-expected 1Q14 and still soft cement prices 4.00 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 in Northern China. Share price HSI rebased to sh. price Management indicated that capacity utilization is currently more than 90% and destocking started in April. It remains positive about demand prospects in Key Data Northern China due to demand from infrastructure construction for regional Price – HK$ 5.80 integration and industry restructuring in BTH. The central government 52W high/low – HK$ 7.20/4.02 announcing more detailed plans later this year would be a catalyst. Of note is Mkt cap (A+H share)– 33,888 (4,345) BBMG’s A/R collection period lengthening for its downstream concrete HK$m (US$m) business, which the company attributes to tighter liquidity. Further liquidity Shares in issue (H share)– 1,169.4 tightening could be a risk for demand growth. millions Free float (H share) – % 95.2 Property. Booked revenue followed up robust 59% y/y growth in 2H13 with a 3M avg. t/o– HK$m (US$m) 41.6 (5.4) 156% y/y surge to RMB4,179m in 1Q14, as project completions are reaching Major shareholder a peak. Property development gross margin dipped by 7 ppts y/y to 33% in BBMG Group 48% 1Q14 due to booking more social housing projects. Looking ahead we expect Sources: Bloomberg and Sun Hung Kai Financial continued strong property performance. Presale GFA rose 27% y/y to 1,648k sq m and presale revenue increased 43% y/y in FY13. These numbers should FY13 revenues: RMB44.8bn be reflected in FY14-FY15 earnings. BBMG’s current land bank totals 5.4m sq Property investment m and it expects to transfer a further 1m sq m of industrial land to this in the 4% Property next 12 months. The company currently has 7m sq m of industrial land in Cement development 29% Beijing. Given the central government’s commitment to relocating industry and 34% transferring industrial land to build social housing/self-use commodity housing, we believe BBMG’s lower-cost industrial land bank should help it remain competitive in the capital’s social housing market. Modern RESEARCH INSTITUTIONAL builing Conclusion. We expect BBMG’s property business to continue performing materials strongly but revise down our cement ASP assumptions for FY14E/FY15E by 33% 5% to reflect the lower-than-expected cement ASP in 1Q14. Overall, we revise down our FY14E/FY15E EPS by 5% and 6% to RMB81.7 fen/RMB90.1 fen respectively. We maintain our target multiple of 7X FY14E P/E for a new target Recent Research price of HK$7.20 (previously HK$7.60), implying 21% upside. BBMG trades at Solid FY13 Results, TP Raised to the low end of its historical valuation range at 5.6X FY14E P/E vs. its Hong HK$7.60 – 3 April 2014 Kong-listed cement peers’ 7.0X. We believe downside risk is limited at the TP Reduced to HK6.60; Maintain Buy – current valuation and maintain our Buy rating. Risks to our target price include 2 Sep. 2013 substantial downturns in cement demand and the property market. 1H13 Results First Glance – 22 Aug. 2013 Northern Exposure – 16 July 2013 (Initiation of Coverage) Stuwart Chen (852) 3929-6164 [email protected] Reports available at: http://www.shkresearch.com http://www.thomsonreuters.com http://www.capitaliq.com http://www.themarkets.com Bloomberg Code: <shkr> Sun Hung Kai Financial Institutional Research BBMG (2009.HK): Weaker Cement Prices, TP Cut to HK$7.20 28 April 2014 Figure 1: BBMG – earnings summary RMB m FY11 FY12 FY13 FY14E FY15E Revenue – RMB m 28,745 34,054 44,790 52,408 58,162 Gross margin – % 23.6 19.5 18.8 19.0 19.5 EBIT margin – % 19.0 14.3 11.2 11.1 11.3 EBITDA – RMB m 6,588 5,963 6,233 7,246 8,154 Net profit – RMB m 3,429 2,969 3,215 3,806 4,313 Net-profit growth – % 24.4 (13.4) 8.3 18.4 13.3 EPS – RMB fen 81.0 69.0 75.1 81.7 90.1 EPS growth – % 14.1 (14.8) 8.8 8.8 10.4 EV/EBITDA – X 9.9 10.9 10.4 9.0 8.0 P/E – X 5.7 6.7 6.1 5.6 5.1 Dividend yield – % 1.6 1.5 1.7 2.1 2.3 P/B – X 1.0 0.9 0.8 0.7 0.6 Weighted average shares – m 4,224 4,284 4,284 4,659 4,785 Sources: Bloomberg and Sun Hung Kai Financial Figure 2: BBMG – forward P/E (X) 16 14 12 10 8 6 4 2 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Forward P/E Mean +/- 1 SD Sources: Bloomberg and Sun Hung Kai Financial Figure 3: Forecast changes FY12 FY13 FY14E - Old FY14E - New FY15E -Old FY15E - New Revenue – RMB m 34,054 44,790 51,865 52,408 57,579 58,162 Gross margin – % 19.5 18.8 19.6 19.0 20.2 19.5 EBIT margin – % 14.3 11.2 11.8 11.1 12.1 11.3 Net profit – RMB m 2,965 3,215 4,021 3,806 4,617 4,313 Net-profit growth – % (13.5) 8.4 25.1 18.4 14.8 13.3 Diluted EPS – RMB fen 69.0 75.1 86.3 81.7 96.5 90.1 EPS growth – % (14.8) 8.8 15.0 8.8 11.8 10.4 Weighted avg. shares – m 4,284 4,284 4,659 4,659 4,785 4,785 Sources: Bloomberg and Sun Hung Kai Financial Sun Hung Kai Financial Institutional Research 2 BBMG (2009.HK): Weaker Cement Prices, TP Cut to HK$7.20 28 April 2014 Figure 4: BBMG – forecast summary FY12 FY13 FY14E FY15E Cement Sales vol. (m tons) 35 39 43 46 ASP (RMB/ton) 247 234 231 236 GP/ton (RMB) 32 42 38 39 Revenue (RMB m) 11,470 13,122 14,452 15,667 Gross profit (RMB m) 1802.8 2,384 2,243 2,418 GPM (%) 15.7 18.2 15.5 15.4 Cement capacity (m tons) 46 46 50 50 Modern building materials Revenue (RMB m) 9,945 14,645 15,228 16,141 Gross profit (RMB m) 1,063 1,026 1,187 1,291 GPM (%) 10.7 7.0 7.8 8.0 Property investment GFA ('000 sq m) 760 760 760 760 Revenue (RMB m) 1,741 1,945 2,084 2,176 Gross profit (RMB m) 1,090 1,175 1,271 1,327 GPM (%) 62.6 60.4 61.0 61.0 Property development Booked GFA ('000 sq m) 836 1,177 1,600 1,840 Commodity 595 722 1,120 1,288 Affordable 241 454 480 552 Pre-sale GFA ('000 sq m) 973 1,648 1,500 1,650 Revenue (RMB m) 10,934 14,953 20,644 24,179 Gross profit (RMB m) 4,136 5,274 7,081 8,317 GPM (%) 37.8 35.3 34.3 34.4 Sources: Company reports and Sun Hung Kai Financial Sun Hung Kai Financial Institutional Research 3 BBMG (2009.HK): Weaker Cement Prices, TP Cut to HK$7.20 28 April 2014 Figure 5: BBMG – valuation comparison FY1 EPS FY2 EPS FY1 FY2 FY2 EV/ Div. Price Market cap YTD Growth Growth P/E P/E EBITDA yield P/B Net D/E ROE (L/C) (US$ m) (%) (%) (%) (X) (X) (X) (%) (X) (%) (%) Cement – Hong Kong listed BBMG-H 2009.HK 5.80 4,370.8 (14.1) 17.6 12.7 5.7 5.1 7.5 1.4 0.8 72.7 13.1 CR Cement 1313.HK 5.80 4,887.1 11.3 25.8 12.6 9.0 8.0 6.8 1.8 1.5 69.5 14.5 Anhui Conch-H 914.HK 29.00 15,473.3 0.9 30.6 13.5 10.0 8.8 5.3 1.5 2.2 18.9 18.0 CNBM-H 3323.HK 7.48 5,208.7 (10.3) 17.8 12.0 4.6 4.1 8.1 2.7 0.9 332.3 17.5 SINOMA-H 1893.HK 1.49 686.4 (10.8) 31.5 15.8 7.0 6.1 5.9 1.7 0.4 99.6 3.5 West China 2233.HK 0.91 533.7 (20.9) 11.4 39.8 7.5 5.4 4.7 2.7 0.7 53.7 7.7 China Shanshui 691.HK 3.31 1,202.2 (0.6) 15.2 13.7 6.4 5.6 5.7 2.8 0.8 153.0 11.4 TCC 1136.HK 3.89 1,653.5 2.4 64.9 11.5 6.4 5.7 5.9 3.4 0.7 54.5 10.1 Asia Cement 743.HK 6.28 1,260.5 28.4 44.7 15.3 6.6 5.7 5.3 3.0 0.9 51.7 9.2 Average (1.5) 28.3 13.5 7.0 6.1 6.1 2.3 1.0 100.7 11.7 Cement – China listed BBMG-A 601992.CH 6.05 4,370.8 (11.0) 18.5 22.5 6.9 5.6 8.5 1.4 1.0 72.7 13.1 Anhui Conch-A 600585.CH 16.60 15,473.3 (2.1) 25.3 14.1 7.5 6.5 5.4 2.1 1.6 18.9 18.0 Tangshan Jidong 000401.CH 8.16 1,757.5 (3.8) 103.0 45.6 17.4 11.9 9.4 1.2 0.9 145.5 1.6 Huaxin 600801.CH 11.51 1,602.7 (5.2) 31.2 12.4 8.1 7.2 5.1 1.6 1.2 83.9 7.2 Jilin Yatai 600881.CH 3.75 1,135.7 (4.3) N/A N/A 9.6 N/A N/A 2.7 0.9 182.6 5.0 Gansu Qilianshan 600720.CH 6.26 776.7 (6.4) 27.3 23.7 8.8 7.1 N/A 0.8 1.2 85.8 11.8 Jiangxi Wannianqing 000789.CH 9.50 620.9 0.4 40.7 17.9 6.8 5.8 4.5 1.1 1.8 55.9 23.1 Average (4.6) 41.0 22.7 9.3 7.4 6.6 1.6 1.2 92.2 11.4 China property Agile 3383.HK 6.43 2,887.6 (22.6) 6.5 12.1 3.7 3.3 5.3 7.3 0.6 89.4 18.8 Evergrande 3333.HK 3.49 6,539.1 17.9 28.2 11.3 4.2 3.8 6.3 0.0 0.9 86.6 29.0 CC Land 1224.HK 1.50 500.7 (23.1) 33.2 61.0 4.0 2.5 4.1 3.0 0.3 31.6 3.7 Country Garden 2007.HK 3.16 7,522.8 (32.5) 25.0 24.1 4.5 3.6 5.0 6.6 1.1 81.2 20.9 Hopson 754.HK 7.62 2,205.4 (18.4) 14.4 21.5 5.5 4.6 8.4 0.0 0.3 61.6 8.1 R & F 2777.HK 10.66 4,430.5 (6.0) 17.3 17.8 4.3 3.6 5.6 7.2 0.9 130.6 26.1 Sino Ocean Land 3377.HK 4.12 3,870.3 (19.1) 27.3 9.7 6.2 5.6 6.6 5.6 0.6 53.9 10.4 China Vanke 000002.CH 7.94 14,464.2 (1.1) 21.9 19.5 4.6 3.9 4.5 5.2 1.1 44.7 21.5 Longfor 960.HK 10.42 7,313.2 (3.9) 20.6 17.7 6.2 5.2 5.9 2.7 1.2 58.6 24.0 CR Land 1109.HK 15.86 11,928.0 (17.5) 25.5 24.1 8.1 6.5 6.6 2.8 1.1 38.8 19.1 Greentown 3900.HK 8.09 2,252.4 (31.7) (1.4) 11.0 2.7 2.4 5.0 6.6 0.6 61.9 21.2 COLI 688.HK 19.12 20,154.3 (12.3) 18.4 18.7 6.7 5.6 5.6 2.5 1.4 28.2 23.4 Franshion 817.HK 2.50 2,954.1 (7.4) 28.3 24.8 6.1 4.9 6.0 3.8 0.8 44.9
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