Last week, the cement sector rebounded, with an overall increase of 4.15%, outperforming the Shanghai Composite Index by 5.05 percentage points, and the weekly gains of Jiangxi Cement, Chaodong, Fujian Cement, etc. exceeded 10%. Industry insiders believe that favorable factors such as the improvement of fundamentals, obvious valuation advantages, and the increase in industrial capital holdings have contributed to the recent strengthening of the cement sector.
In terms of fundamentals, the northeast and northwest regions enter the winter, while the east and south regions gradually enter the off-season. However, in 2012, the kiln stopping time in the East China region may reach 30 days, which is better than the average of the previous 15 days. This will reduce the downward pressure on prices in the off-season. This may be the short-term positive factor for the rebound of cement stocks in the near future. At the same time, the Central Economic Work Conference proposed to "accelerate the construction of ordinary commercial housing and expand effective supply," and also to some extent increase the market's expectations for cement demand next year.
From a long-term perspective, cement demand is about to enter the low growth cycle. Founder Securities pointed out in the report that the correlation coefficient between the growth rate of cement demand and the growth rate of investment in fixed assets was as high as 0.7, and the ratio of real estate, infrastructure, and rural construction in downstream demand was about 40%, 30%, and 30%. In 2011, real estate supported cement. With the increase in demand, cement production is expected to increase by 11%. In 2012, the property pulling effect weakened, and it is expected that the growth rate of China's fixed asset investment will decline to around 18% during the “12th Five-Year Plan†period, and the growth rate of “Three Downstream†investment will decline faster. It is expected that the average cement production will increase from 2012 to 2015. The rapid decline to 4.1%, the average annual consumption of cement per capita will come to a peak.
However, despite the drop in new demand, CSC Securities said that the pressure on new capacity in the next two years will be small, and the backward production capacity of 250 million tons will be eliminated during the “12th Five-Year Plan†period. The overall supply and demand pattern of the cement industry will be eliminated. Still relatively good. Founder Securities also stated that, given the control of the cement supply side, the new implementation of “equal or reduced phase-out†will help improve the supply and demand relationship. In 2011, the net increase in clinker production capacity was less than 50 million tons; the policy encouraged mergers and reorganizations, and the degree of concentration The space for improvement is still large, and the increase in concentration is conducive to improving price control; and energy saving and environmental protection development models such as reducing energy consumption, waste heat power generation, and co-processing have policy support, and at the same time create new profit centers for enterprises, etc., although cement demand It is about to enter the low-speed growth cycle and the industry's high profitability level will continue.
From a valuation point of view, after undergoing a sharp 50% adjustment in the second half of the year, the PE valuation of the sector has reached a new low, while the PB valuation has also entered a relatively low, and many cement companies' ton EV and tons The market value has already entered the industry investment and M&A cost interval, and the value of medium and long-term investment has gradually become significant. According to the calculations made by CITIC Construction, based on the 2012 production, the replacement cost is calculated at RMB 400, and the tonnage EV/replacement cost premium is around 0-50%. Recently, the incidents such as the increase in holdings of Jidong Cement by Conch Cement and the increase in holdings by the controlling shareholder of Qingsong Jianhua have all shown that industrial capital has perceived the investment value of the secondary market, and the sector presents investment opportunities on the left.
The industry believes that in the first half of next year, under the support of liquidity recovery and policy relaxation expectations, the cement sector is expected to usher in a valuation repair market. In the second half of the year, with the bottoming out of the industry's gross profit margins and profit growth, profit improvement may become a powerful booster for the sector's market. Taken together, most people in the industry believe that the second quarter will be the best time for investment in the sector. Individual stocks should still choose leading companies with stable growth and low valuation, such as Conch Cement, Jidong Cement, and Huaxin Cement.
In terms of fundamentals, the northeast and northwest regions enter the winter, while the east and south regions gradually enter the off-season. However, in 2012, the kiln stopping time in the East China region may reach 30 days, which is better than the average of the previous 15 days. This will reduce the downward pressure on prices in the off-season. This may be the short-term positive factor for the rebound of cement stocks in the near future. At the same time, the Central Economic Work Conference proposed to "accelerate the construction of ordinary commercial housing and expand effective supply," and also to some extent increase the market's expectations for cement demand next year.
From a long-term perspective, cement demand is about to enter the low growth cycle. Founder Securities pointed out in the report that the correlation coefficient between the growth rate of cement demand and the growth rate of investment in fixed assets was as high as 0.7, and the ratio of real estate, infrastructure, and rural construction in downstream demand was about 40%, 30%, and 30%. In 2011, real estate supported cement. With the increase in demand, cement production is expected to increase by 11%. In 2012, the property pulling effect weakened, and it is expected that the growth rate of China's fixed asset investment will decline to around 18% during the “12th Five-Year Plan†period, and the growth rate of “Three Downstream†investment will decline faster. It is expected that the average cement production will increase from 2012 to 2015. The rapid decline to 4.1%, the average annual consumption of cement per capita will come to a peak.
However, despite the drop in new demand, CSC Securities said that the pressure on new capacity in the next two years will be small, and the backward production capacity of 250 million tons will be eliminated during the “12th Five-Year Plan†period. The overall supply and demand pattern of the cement industry will be eliminated. Still relatively good. Founder Securities also stated that, given the control of the cement supply side, the new implementation of “equal or reduced phase-out†will help improve the supply and demand relationship. In 2011, the net increase in clinker production capacity was less than 50 million tons; the policy encouraged mergers and reorganizations, and the degree of concentration The space for improvement is still large, and the increase in concentration is conducive to improving price control; and energy saving and environmental protection development models such as reducing energy consumption, waste heat power generation, and co-processing have policy support, and at the same time create new profit centers for enterprises, etc., although cement demand It is about to enter the low-speed growth cycle and the industry's high profitability level will continue.
From a valuation point of view, after undergoing a sharp 50% adjustment in the second half of the year, the PE valuation of the sector has reached a new low, while the PB valuation has also entered a relatively low, and many cement companies' ton EV and tons The market value has already entered the industry investment and M&A cost interval, and the value of medium and long-term investment has gradually become significant. According to the calculations made by CITIC Construction, based on the 2012 production, the replacement cost is calculated at RMB 400, and the tonnage EV/replacement cost premium is around 0-50%. Recently, the incidents such as the increase in holdings of Jidong Cement by Conch Cement and the increase in holdings by the controlling shareholder of Qingsong Jianhua have all shown that industrial capital has perceived the investment value of the secondary market, and the sector presents investment opportunities on the left.
The industry believes that in the first half of next year, under the support of liquidity recovery and policy relaxation expectations, the cement sector is expected to usher in a valuation repair market. In the second half of the year, with the bottoming out of the industry's gross profit margins and profit growth, profit improvement may become a powerful booster for the sector's market. Taken together, most people in the industry believe that the second quarter will be the best time for investment in the sector. Individual stocks should still choose leading companies with stable growth and low valuation, such as Conch Cement, Jidong Cement, and Huaxin Cement.
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