Expect sequential cement sales rebound and unit GP improvement
<Meeting takeaways> Expect sequential cement sales rebound and unit GP improvement
We have arranged group investor call with CNBM (3323 HK) and have summarised below takeaways from the meeting.
- Cement price and unit GP trend. The price increase progress had been disrupted by the return of Covid in 1Q, but management expects product price hike in April and May as usual, resulting unit GP to improve.
- Flattish cement sales guidance. Cement and clinker products market would see a decline for 1Q. Based on the late-March market momentum, overall sales are expected to pick up into 2Q. The main consumption drivers include the construction of affordable housing and urban renewal and the accelerating infrastructure development projects. In 2022, it set a slightly lower cement sales volume target at 367m tons (FY21: 373m tons).
- The off-peak production. Amid the impact of Covid, the number of days of capacity in suspension was longer than normal year during 1Q. For example, it suspended 40 days in Jiangxi (FY20: 20 days) and same for those located in Eastern China region. Overall, the company expects the number of days of capacity suspension would be longer than last year.
- Further group cement/asset restructure plan. After it established the New Tianshan platform, the company would undergo the same for the remaning two cement units – Ningxia Building Materials (600449 CH) and QiLianShan (600720 CH) by 2023, expecting to unlock further synergy across the business. Also, it would accelerate its new materials and engineering services (non-cement) development with target earnings split between the cement and non-cement segment at 50:50 by 2025.
- Beneficiary of the stricter emission. It foresees the tremendous growth opportunity for its engineering unit Sinoma International (600970 CH) as rising demand for the technical upgrade for those sub-standard capacity and equipment in the industry. The segment revenue (17% of total revenue) could expand >25% p.a. next two years.
- ESG related capex. It budgeted RMB2.9b and RMB1.5b capex in 2022 and 2023 for upgrading the company’s 40% of clinker capacity to comply national standard by 2025 versus required 30% of industry total by law. Also, it would reveal plan of carbon strategy and own renewable energy supply source during the upcoming interim period.
After all, we foresee that CNBM’s earnings driver this year underpinning from the continuous unit GP improvement. The stock is trading at only 0.6x FY22F P/BV. We have BUY rating and TP of HK$16.5