Building materials industry: Off-season kiln supporting cement price valuation to safety margin

In the off-season in East China and Central China, the shutdown of the kiln exceeded expectations, effectively supporting the off-season prices; liquidity improvement and policy easing expectations were further strengthened; valuations already had a certain margin of safety.

Report summary:

In the industry's fundamentals, the northeast and northwest regions have entered the winter, and the eastern and southern regions have gradually entered the off-season. The kiln stopping time for the 2012 Spring Festival in East China may reach 30 days, which is better than the 15 days in previous years. This will reduce the pressure for the off-season price adjustment. We think this is the reason why the cement block rebounded yesterday.

Relaxation expectations of recent real estate regulation have been strengthened, from the expected relaxation of macroeconomic policies, and changes in the expression of real estate regulation in the recent Central Economic Conference “accelerated the construction of ordinary commercial housing, and expanded effective supply”, showing that the recent trend in the real estate sector is relatively strong , And in some areas, real estate volume rebounded.

In addition, the support of Qingsong Jianhua’s major shareholder’s increase in confidence in the secondary market and the long-term pessimistic expectations of the cement sector have contributed to a relatively large rebound yesterday.

We look at the valuation recovery in the first quarter of next year mentioned in the annual strategy, and the viewpoint of profit recovery in the third and fourth quarters is still valid. The recovery of valuation relied on liquidity improvement and policy loosening expectations, which led cement stocks to rebound. The rebound will not be supported by rising cement prices before the second quarter, and the extent will depend mainly on substantial policy easing. At present, the market is more cautious about policy relaxation, and it is in a good state. The current economy should indeed not make strong policy stimulus, but should let it rest and recuperate. On the other hand, the government may also continue to implement policies to implement the “accelerating ordinary housing construction and effectively expanding supply” mentioned in the Central Economic Conference. It is recommended that investors pay close attention to real estate policies and sales.

The stock price already contains a larger price drop expectation. If the suspension of kiln implementation is in place during the Spring Festival, the down season price reduction is likely to be better than expected. Take Conch Cement as an example, 13-15 yuan is the bottom support level for the value of heavy hammer. Applying the analysis in the annual strategy, the 15 yuan conch cement implies an expected profit of 1.5 yuan for the next year, which corresponds to a net profit of 45 yuan per ton. The annual gross profit per ton is 80 yuan, and the annual average price is 270 yuan, a drop of 15 yuan from 2011. %. It roughly includes the expectation that the price of cement in eastern China will fall by around 55 yuan in the off-season.

Therefore, we believe that even if policy relaxation does not exceed expectations, the current valuation already has a certain margin of safety, and it is possible to gradually purchase the shares. Recommended Jidong Cement, Conch Cement, concerned about horse racing industry.

Risks indicate that investment in fixed assets, real estate investment and new construction starts are lower than expected; raw material costs have risen sharply; and the price war in the cement industry has been re-introduced.