新鸿基地产(0016.HK):FY18 results in line with expectations: 13% DPS hike

2018-09-14 15:56 港股研报君 阅读 340

机构:高盛

We hosted a conference call with CNBM on Sep 12, 2018 to provide an update on CNBM's 3Q18 operations and outlook for 4Q18. Recent market concerns surrounding the NDRC investigation on construction material prices, loosening of production halts in Northern China and Vietnamese clinker imports were also addressed on the call. We list the following key takeaways:

1) NDRC investigation. The NDRC did not conduct an investigation of aggregate, cement and concrete prices, rather it asked the China Building Materials Federation (CBMF) to conduct a routine annual market study of product prices. The memo was leaked and misrepresented by the market. A private meeting was held on Sep 12 to clarify the misunderstandings between the NDRC and stakeholders such as CBMF, China aggregates association, cement, concrete and aggregate companies. The conclusions from the meeting were that cement and concrete prices were within a reasonable range, and that the rise in concrete prices was mainly driven by the sharp rise in aggregate prices. Therefore, measures to loosen river sand mining as well as accelerated approvals for limestone mining could occur in order to ease the shortage in aggregates.

2) 4Q price hikes on track and slightly better than expectations. The fundamentals are supportive of price hikes, with record-low inventories, tightening of supply ahead and seasonal recovery in demand. In Eastern China, price hikes of RMB20-30/t have already occurred, with another round of price hikes likely to come in end-Sep and early Oct, once the issues with NE China and Vietnam imports are resolved. CNBM is confident that its 2H18 guidance for a HoH RMB20-30/t price hike can be realized. Regarding whether cement prices will reach the c.RMB530/t+ peak levels seen in 4Q17, CNBM would prefer to see gradual price hikes in 4Q that are more sustainable even into 2019.

3) Market rumors untrue regarding scaling back winter production halt plans. The peak shifting production halt plan is currently under preparation by MIIT and MEP, and it is set to be released by the end of Sep. CNBM expects the number of halt days to be no less than that of last year.

4) Vietnam clinker imports not a concern. Vietnam clinker reached a peak in August, but that was due to the clinker shortage in Eastern China and summer restocking ahead of the 4Q18 peak season. There are a few ways to resolve the Vietnam clinker import issues: 1) customs could step up inspection of clinker imports through environmental measures, 2) clinker prices could be aggressively lowered in Jan 2019 so that importers lose money and 3) the Haizhong trading platform could be utilized to purchase Vietnam clinker imports.

5) Deleveraging is on track. CNBM has repaid RMB2.7bn in loans that matured in July, and it will pay down more debt as it becomes due. The company remains confident that it can repay at least RMB10bn of debt in FY18.

6) Land sales after capacity swap as potential one-off gains. Based on the cement sector's capacity swap plan, CNBM can phase out 1.5 tonnes of clinker capacity in exchange for 1 tonne of capacity in Zhejiang. After the phase-out, supply-demand in the region would likely significantly improve in the next few years. The land on which the old cement lines were built can also be sold back to the local government, which could lead to a sizable one-off gain given its prime location. In some of those regions, CNBM has already reached an agreement with the local government on the compensation scheme.

7) 2H18 operations staying strong. Sales volumes in Jul and Aug are up yoy, meaning that CNBM's volume decline has reduced vs. 1H18 when volumes were down 5.6% yoy. ASP and GP/t in Jul and Aug increased from 1H18 levels. CNBM's New materials and Engineering segments also remained strong in 3Q18.

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