by winston » Wed Dec 25, 2013 9:27 pm
Dec 17, 2013
Government-mandated production stoppages, a lack of new capacity and resilient growth have caused cement prices in east and south China to spike in 4Q13, similar to 4Q10 - from December 2010 to the peak in July 2011, shares of Anhui Conch (Conch), China Resources Cement (CRC) and CNBM rose 36-94%.
Compared to 4Q10, investment in cement industry capacity is 27% lower (last 12 months), absolute demand is 29% higher and YoY demand growth is just 1.9ppt lower. Pollution control has become a key government priority, and the property market is recovering, not weakening. Conch currently trades at just over 2x PBR versus more than 3x PBR in December 2010. We think this backdrop is positive for stocks in 2014.
The key catalyst for the stocks will be cement prices in the low season, starting mid-December. As long as demand remains robust, we expect prices to dip less than what is currently priced into these stocks. Accordingly, 2013E and 1Q14E earnings as well as 2014E upgrades should be positive catalysts, in our view.
Our top pick is CRC (1313 HK, OP), given higher utilisation and demand growth in south China. We also like CNBM (3323 HK, OP) and Conch (914 HK, OP). We raise our price targets for CRC and Conch to reflect better cost control and increased confidence in prices for 2014. We downgrade China Shanshui Cement (691 HK) to In-Line, given new supply additions in its key markets in 2013.
Source: Std Chartered
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