China Cement: Breezing Into 2H - When Tight Supply Meets Strong Demand

China Cement
Deutsche Bank
Research
Asia Industry Date

China
Hong Kong China Cement 26 July 2018
Taiwan Forecast Change

Resources
Construction Materials
Breezing into 2H - when tight supply

meets strong demand
Johnson Wan
Supply discipline and robust demand to power cement price rally in 2H
Research Analyst
We hosted a cement trip, visiting SW (Kunming, Guizhou and Chongqing) and
+852-2203 6163
Central (Hubei) China. The trip further supported our bullish call on a supply-
driven upcycle for cement. The key takeaways were: 1) The weakest demand
Key Changes
province of Hubei (-5% for 1H18) had the highest cement price, as it had the Company Target Price Rating
strictest environmental standards; 2) Supply discipline has never been stronger, 0914.HK 60.00 to 65.40 -
with producers’ interests all aligned with profitability; hence, all seven cement 600585.SS 48.30 to 56.80 -
producers we met plan to raise prices sharply in 2H; 3) There are no signs of a 1313.HK 11.53 to 12.09 -
demand slowdown in our view and we even foresee a construction boom in 2H18 2233.HK 2.50 to 2.37 -
and 1H19 - to finish a large backlog of infrastructure and property projects. All 2009.HK 5.50 to 4.28 -
of the above means our earnings estimates need to be revised up by 14%/13% 601992.SS 4.43 to 3.72 -
for 2018/2019. Risk/reward is extremely favorable for cement in our view, Buy on 1102.TW 43.67 to 56.51 -
strong 1H18 results ahead. Top picks: CNBM, CRC, Conch-A and WCC. 1101.TW 45.43 to 65.51 Hold to Buy
Source: Deutsche Bank
An era of high profits - government and producers’ interests all aligned Figure 1: 1H18E achievement
Over the next few years, we believe cement players will be very profitable, starting 1H18E FY18 FY18 % of % of
EPS DBe EPS Cons EPS DBe EPS Cons EPS
with the change in producers' sales philosophy. On July 1, Conch restructured Conch
CRC
2.23
0.58
5.17
1.19
4.29
1.04
43%
49%
52%
55%
its performance measurement system with the average employee receiving a CNBM 0.47 1.11 1.09 43% 44%
WCC 0.11 0.27 0.21 41% 53%
20-30% hike in basic salary and even higher incentive pay if key KPIs such BBMG 0.23 0.50 0.36 46% 65%
TCC 1.74 4.37 3.77 40% 46%
as profitability are met. Higher costs for Conch must therefore be offset by ACC 1.89 3.79 2.76 50% 68%
higher profits. We also saw producers sacrificing market share in exchange for CV 1.36 2.81
Average (excluding CV)
2.67 48%
45%
51%
55%
higher profits, e.g. Asia Cement in the Hubei market. In tandem with government Median (excluding CV) 43% 53%
pressure to reduce emissions, the government believes peak shifting production Source: Deutsche Bank estimates, company data
halts are the most effective tool for reducing air pollution. The number of days of
halts is now linked with the “emission quota” per plant, and those emissions are
monitored 24 hours a day, so cheating is not likely possible. Valuation and risks: We value companies
covered using P/E, P/B, EV/t and SOTP.
Upside risks: higher-than-expected price
The outcome thus far is that 2018’s slow season has defied expectations with hikes, lower-than-expected coal price hikes,
nationwide cement prices only falling by 1.2% since early June versus 4.5% in removal of low-grade cement. Downside
risks: removal of peak shifting production
2017. In Sichuan and Chongqing, cement prices were even hiked by RMB40/t on
halts, higher-than-expected coal prices
18 July, due to the start of the summer peak shifting production halts (10 days in and diminished demand for cement. See
each month for July to Sep). A RMB50/t price hike is also planned in Guizhou by company valuation and risks detailed on
end-Aug. In East China, clinker prices have been raised by RMB10-30/t recently, Figure 7 on page 6.
in Zhejiang and Jiangsu, due to a clinker shortage as a result of heightened
environmental inspections. As we approach 4Q, during the winter time when
Deutsche Bank AG/Hong Kong

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Distributed on: Thus, investors
25/07/2018 should
17:48:14 be
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aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS
ARE LOCATED IN APPENDIX 1. MCI (P) 091/04/2018. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLE ’ S
REPUBLIC OF CHINA (“THE PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF
PRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU.
26 July 2018
China Cement
pollution is worst, and demand is greatest, we expect more unplanned production

halts, likely leading to a V-shaped rebound in cement prices similar to 4Q17.
Very strong demand from infrastructure projects

One of the top agenda items in the 13th Five Year Plan is "poverty relief" and
that has become a clear bright spot for cement demand in 2018. By 2020, all
rural villages in China need to be connected with a cement paved road and
local governments are facing a lot of pressure to finish this gargantuan task. For
example, in Guizhou (1H18 demand up 9.6%), the relief work involves building
50,000 km of roads by the end of 2018 to join all villages together and further
connecting them to highways directly. Only 40% of the work has thus far been
completed in 1H18, with the work back-end loaded in 2H. Due to the shear size
of the project, c.60% of the cement produced by CNBM Guizhou went directly to
poverty relief projects, with all cement players in Guizhou having zero inventory
currently. Beyond poverty relief, municipal infrastructure projects, often financed
using PPP, were a huge driver of cement demand (c.30%) and visibility for those
projects will likely last over the next few years. During 1Q18, RMB1.2 trillion of
low return PPP projects were removed from the database and this process is
now complete, with projects now resuming normal construction. By May 2018,
RMB 5.9 trillion or 52% of the projects that have received approvals are under the
execution stage, up 100% from May 2017. Our chief economist, Zhang Zhiwei,
also believes that with the government now confirming a policy easing stance for
2H, fixed asset investment will likely rebound from 7.3% in 1H to 10% in 2H.
Property sell-through rate remaining high as restocking continues

Despite increased property restrictions, the desire to buy property remains as
strong as ever in our view. Sell-through rates for new homes are c.100% as the
expectation of many Chinese citizens is that property prices cannot drop as land
prices continue to make new highs. The catch is, of course, that the government
controls the land prices, so they too want higher prices as land sales are a
significant contributor to government revenues. For 1H18, commodity property
floor area sold is up 3.3% yoy but in reality that figure is significantly higher.
Most local governments are trying to align with the central government's rhetoric
of "houses are for living and not for speculation" so have delayed the online
registration, to massage the data. A more telling figure is GFA starts, which is
up 11.8%, and we believe this will stay strong due to record sales in land and
property sold. With property inventories at an all-time low, the property market
will likely continue to enter a restocking phase in the next few years, supporting
solid demand growth in our view.
1H18 earnings preview for cement - earnings to increase by 133% yoy

Cement prices continued their strong momentum in 2H17 and they have been
maintained at a high level in 1H18, with nationwide cement prices up an average
of 25% yoy. The strong price hikes mean median earnings should rise by ~133%
for cement companies under our coverage due to the low base in 1H17. Despite
the strong pricing in 4Q17, we still expect 2H18 earnings to increase by 78%
yoy, with July prices already up 25% yoy. The slow season this year has thus
far defied expectations, with prices dropping by only 1.2% from June to July as
a result of much stronger supply discipline and peak shifting production halts.
Some regions have even begun the price hikes. Based on our revised estimates,
cement companies in 1H would have already achieved 45% of full-year consensus
earnings, with DBe's earnings on average 23% higher than the Street's.
Page 2 Deutsche Bank AG/Hong Kong

26 July 2018
China Cement
Comp sheet
Figure 2: Summary of companies
Conch(H) Conch(A) CNBM CRC* BBMG (H) BBMG (A) WCC TCC** ACC Average
Ticker 0914.HK 600585.SS 3323.HK 1313.HK 2009.HK 601992.SS 2233.HK 1101.TW 1102.TW
Reporting currency CNY CNY CNY HKD CNY CNY CNY TWD TWD
Share price as of 25/7/2018 in local curr 48.90 38.23 8.25 8.75 2.94 3.76 1.32 45.10 39.55
Target price (in local curr) 65.40 56.80 12.75 12.09 4.28 3.72 2.37 65.51 56.51
Potential upside/downside (%) 34% 49% 55% 38% 46% -1% 80% 45% 43%
Rating Buy Buy Buy Buy Buy Hold Buy Buy Buy
Market cap (USD bn) 30.7 30.7 5.7 7.9 5.5 5.5 0.9 6.2 4.0
Cement capacity (mt)
2015 290.0 290.0 521.0 79.3 172.4 172.4 29.2 65.3 36.0 170.4
2016 313.0 313.0 521.0 81.3 172.4 172.4 29.2 65.3 37.0 174.2
2017 335.0 335.0 525.0 83.3 172.4 172.4 29.2 65.3 37.0 178.2
2018E 349.8 349.8 533.0 83.3 172.4 172.4 29.2 67.3 37.0 181.7
2019E 369.8 369.8 541.0 85.3 172.4 172.4 29.2 67.3 37.0 186.0
2020E 389.8 389.8 549.0 85.3 172.4 172.4 29.2 67.3 37.0 190.0
2018 capacity chg (%) 4% 4% 2% 3% 2%
2017-2020E CAGR (%) 8% 8% 2% 1% 2% 3%
Total sales volume (mt)
2015 255.6 255.6 277.9 81.4 39.3 39.3 17.1 47.7 28.4 106.8
2016 277.0 277.0 289.2 84.9 113.2 113.2 17.6 53.3 29.3 123.5
2017 295.0 295.0 287.1 83.8 102.6 102.6 18.8 58.8 28.2 124.9
2018E 310.4 310.4 287.1 84.5 99.5 99.5 18.5 54.2 28.2 126.1
2019E 319.4 319.4 287.8 86.2 96.5 96.5 18.6 54.2 28.2 127.3
2020E 327.4 327.4 288.5 88.0 93.6 93.6 18.8 54.2 28.2 128.4
2018 Sales volume chg (%) 5% 5% 0% 1% -3% -3% -2% -8% 0% 1%
2017-2020E CAGR (%) 5% 5% 0% 2% -4% -4% 0% -4% 0% 1%
Sales exposure by regions (2017)
East 29% 29% 36% 12% 2% 2% 23%
Central 32% 32% 11% 3% 3% 11%
South 14% 14% 4% 76% 25%
West 21% 21% 38% 9% 18% 18% 100% 38%
North 10% 3% 77% 77% 3%
Export / Others 3% 3% 1%
ASP Assumptions
2015 194 194 212 266 178 178 200 225 196 210
2016 197 197 207 249 179 179 207 209 193 206
2017 247 247 257 297 245 245 247 266 245 258
2018E 312 312 273 388 280 280 306 344 365 324
2019E 313 313 280 392 290 290 310 354 379 331
2020E 317 317 286 393 295 295 318 361 389 337
2018 ASP chg 64.8 64.8 16.0 90.5 34.8 34.8 59.3 77.7 119.8 66
2018 ASP chg % 26% 26% 6% 30% 14% 14% 24% 29% 49% 26%
Profitability - GP (per tonne)
2015 55 55 49 61 18 18 28 35 30 39.3
2016 64 64 53 67 39 39 37 43 39 48.8
2017 87 87 71 95 74 74 62 60 61 72.8
2018E 138 138 95 164 105 105 116 126 125 124.3
2019E 139 139 101 168 110 110 121 131 136 129.4
2020E 143 143 106 168 115 115 128 136 144 134.5
EBITDA (per tonne) Cement Only Cement Only
2015 59.2 59.2 77.2 58.3 29.1 29.1 38.8 52.5
2016 60.9 60.9 62.7 62.6 46.5 46.5 64.1 59.4
2017 88.2 88.2 79.1 86.6 61.1 61.1 104.3 83.9
2018E 113.6 113.6 106.5 153.3 84.1 84.1 149.2 121.3
2019E 118.1 118.1 111.9 160.1 92.5 92.5 158.6 128.3
2020E 123.7 123.7 117.8 162.5 101.0 101.0 176.0 136.2
* in HKD
** Cement operating data in HKD
Note: ACC and TCC's operating data assumptions are that of ACCH and TCC's China operation
Source: Deutsche Bank estimates, company data
Deutsche Bank AG/Hong Kong Page 3

26 July 2018
China Cement
Figure 3: Summary of companies

24/7/2018
Conch(H) Conch(A) CNBM CRC* BBMG (H) BBMG (A) WCC TCC** ACC Average
Ticker 0914.HK 600585.SS 3323.HK 1313.HK 2009.HK 601992.SS 2233.HK 1101.TW 1102.TW
Reporting currency CNY CNY CNY HKD CNY CNY CNY TWD TWD
Share price as of 25/7/2018 in local curr 48.90 38.23 8.25 8.75 2.94 3.76 1.32 45.10 39.55
Target price (in local curr) 65.40 56.80 12.75 12.09 4.28 3.72 2.37 65.51 56.51
Potential upside/downside (%) 34% 49% 55% 38% 46% -1% 80% 45% 43%
Rating Buy Buy Buy Buy Buy Hold Buy Buy Buy
Market cap (USD bn) 30.7 30.7 5.7 7.9 5.5 5.5 0.9 6.2 4.0
Valuation - P/E
2016 10.2 9.9 15.9 10.6 12.4 16.7 29.6 19.2 23.3 17.3
2017 8.3 7.7 7.7 7.9 12.3 22.8 9.6 17.3 16.2 11.3
2018E 9.7 8.7 6.5 7.7 6.6 9.8 4.2 15.5 14.5 9.3
2019E 8.9 8.0 5.2 7.0 4.3 6.4 3.7 13.7 14.3 8.2
2020E 8.2 7.4 4.2 6.7 4.3 6.3 3.1 12.8 13.4 7.5
2018 PE @ TP 12.0 12.0 9.2 10.5 8.9 9.5 7.0 22.4 20.7 13.0
P/B
2016 1.2 1.2 0.4 0.6 1.1 1.1 1.2 0.9 0.8 0.9
2017 1.1 1.0 0.4 0.6 0.5 0.9 0.6 1.0 0.7 0.7
2018E 2.2 2.0 0.8 1.6 0.5 0.7 0.8 1.2 0.9 1.2
2019E 2.0 1.8 0.7 1.5 0.5 0.7 0.7 1.2 0.9 1.1
2020E 1.9 1.7 0.6 1.4 0.4 0.6 0.6 1.2 0.9 1.0
2018 PB @ TP 2.8 3.0 1.1 2.2 0.8 0.7 1.5 2.0 1.3 1.7
ROE (%)
2016 12% 12% 3% 5% 7% 7% 0% 6% 3% 5%
2017 19% 19% 7% 13% 6% 6% 11% 6% 4% 10%
2018E 25% 25% 13% 24% 8% 8% 20% 9% 7% 15%
2019E 24% 24% 14% 22% 11% 11% 20% 10% 7% 15%
2020E 24% 24% 15% 21% 10% 10% 20% 11% 7% 16%
EV/tonne (RMB/t)
2015 664.3 683.7 431.2 686.3 691.0 661.4 239.1 nm nm 542.4
2016 615.5 633.5 431.2 669.4 691.0 661.4 239.1 nm nm 529.2
2017E 575.1 591.9 427.9 653.3 691.0 661.4 239.1 nm nm 517.3
2018E 550.7 566.9 421.5 653.3 691.0 661.4 239.1 nm nm 511.1
2019E 520.9 536.2 415.3 638.0 691.0 661.4 239.1 nm nm 500.9
2020E 494.2 508.7 409.2 638.0 691.0 661.4 239.1 nm nm 494.3
EV/EBITDA
2016 5.0 4.9 10.0 4.8 11.4 13.0 7.2 9.7 8.7 8.1
2017 4.6 4.3 8.0 4.6 9.9 12.6 3.9 7.7 8.0 6.7
2018E 5.7 5.1 6.7 4.6 5.6 6.6 2.6 7.0 7.0 5.6
2019E 5.1 4.5 6.1 4.1 4.5 5.4 1.8 6.3 6.7 5.0
2020E 4.6 4.0 5.6 3.7 4.5 5.4 1.2 5.8 6.2 4.5
Net debt/equity (%)
2016 0% 0% 221% 56% 85% 85% 45% 41% 51% 71%
2017 -12% -12% 186% 39% 107% 107% 35% 39% 50% 63%
2018E -23% -23% 163% 14% 58% 58% 11% 35% 44% 43%
2019E -29% -29% 145% 7% 56% 56% -9% 30% 40%
2020E 5.21 5.21 1.71 1.33 0.60 0.60 0.37 3.57 2.97
EPS growth (%)
2016 13.7% 13.7% 3.8% -17.8% 33.2% 33.2% -212.5% 10.1% -9.6% -26%
2017 85.4% 85.4% 204.8% 117.8% 5.6% 5.6% 198.4% 17.9% 44.6% 96%
2018E 46.4% 46.4% 86.2% 109.4% 46.7% 46.7% 167.1% 44.3% 59.7% 80%
2019E 9.2% 9.2% 24.6% 9.2% 53.0% 53.0% 14.5% 13.5% 1.9% 18%
2020E 8.6% 8.6% 23.2% 5.3% 0.5% 0.5% 19.1% 7.2% 6.7% 10%
DPS
2015 0.43 0.43 0.04 0.08 0.02 0.02 1.25 1.10
2016 0.50 0.50 0.04 0.09 0.05 0.05 1.45 0.90
2017E 1.20 1.20 0.16 0.27 0.06 0.06 0.03 1.71 1.20
2018E 2.20 2.20 0.29 0.66 0.08 0.08 0.07 2.47 1.90
2019E 2.88 2.88 0.39 0.77 0.12 0.12 0.11 2.80 1.93
Dividend yield (%)
2016 3.0% 3.1% 1.4% 3.3% 1.7% 1.2% 0.0% 4.4% 3.3% 2.4%
2017 4.8% 5.2% 3.4% 6.2% 1.7% 0.9% 0.0% 4.9% 4.3% 4.0%
2018E 5.2% 5.7% 4.0% 7.4% 3.1% 2.1% 5.9% 5.4% 4.8% 5.1%
2019E 6.8% 7.5% 5.4% 8.7% 4.8% 3.3% 9.5% 6.2% 4.9% 6.6%
2020E 8.6% 9.5% 7.1% 10.0% 4.8% 3.3% 13.0% 6.6% 5.2% 7.9%
* in HKD
** Cement operating data in HKD
Note: ACC and TCC's operating data assumptions are that of ACCH and TCC's China operation

26 July 2018
China Cement
Earnings preview
1H18 earnings preview
Cement prices continued their strong momentum in 2H17, and they have
maintained a high level in 1H18, with nationwide cement prices up an average
of 25% yoy. The strong price hikes mean median earnings should rise by ~133%
for cement companies under our coverage, due to the low base in 1H17. Despite
the strong pricing in 4Q17, we still expect 2H18 earnings to increase by 78%
yoy, with July prices already up 25% yoy. The slow season this year has thus
far defied expectations, with prices dropping by only 1.2% from June to July, as
a result of much stronger supply discipline and peak shifting production halts.
Some regions have even begun the price hikes. Based on our revised estimates,
cement companies in 1H would have already achieved 45% of full-year consensus
earnings with DBe's earnings on average 23% higher than the Street's.
Figure 4: Share price performance in 2018 YTD Figure 5: 1H18E earnings YoY increase
120% 250%
101%
220%
100%
75%
80% 200% 181%
55% 170%
60%
41%
40% 33% 29% 150% Average: 133%
25% 131%
22% 17%
20% 116%
0% 100%
76% 70%
-20%
-18%
-40% -31% 50% 36%
-60%
Conch Venture
BBMG-H
TCC
ACCH
ACC
CNBM
BBMG-A
CRC
Conch-H
Conch-A
WCC
0%
ACC ** WCC CNBM CRC * TCC ** ConchConch VentureBBMG
Source: Deutsche Bank, Company data Source: Deutsche Bank estimates, Company data (note: the average excludes Conch Venture)
Figure 6: 1H18 operating forecasts

Volume (mt) ASP (RMB/t) ACP (RMB/t) GP (RMB/t) EPS (RMB/sh)
1H18E 1H17 % yoy chg 1H18E 1H17 % yoy chg 1H18E 1H17 % yoy chg 1H18E 1H17 % yoy chg 1H18E 1H17 % yoy chg
Conch 142 134 6% 309 230 34% 173 155 12% 135 76 79% 2.23 1.27 76%
CRC * 40 38 5% 388 290 34% 232 202 15% 156 88 78% 0.58 0.25 131%
WCC 8 9 -6% 308 239 29% 193 184 5% 115 55 109% 0.11 0.04 181%
CNBM 160 171 -7% 313 243 29% 200 180 11% 113 63 79% 0.47 0.18 170%
BBMG 45 46 -2% 284 243 17% 183 171 7% 101 72 40% 0.23 0.17 36%
TCC ** 25 27 -7% 332 222 49% 217 179 21% 115 43 167% 1.74 0.81 116%
ACC ** 15 14 5% 322 226 43% 194 188 3% 111 38 191% 1.89 0.59 220%
Conch Venture 1.36 0.80 70%
Median -2% 34% 11% 79% 131%
Average 79 79.4 -1% 320 249 34% 196 178 11% 124 71 106% 0.73 0.38 133%
* CRC operating data in HKD

** TCC/ACC EPS in TWD but operating data is for China segment in RMB
Source: Deutsche Bank estimates, Company data
Profit warning/alert
Conch, CRC, WCC, BBMG, and CNBM have already issued profit alerts.

26 July 2018
China Cement
TP changes and earnings

Figure 7: Summary of changes
Company Conch-H Conch-A Conch Venture WCC CRC BBMG-H BBMG-A CNBM ACC TCC
Tickers 0914.HK 600585.SS 0586.HK 2233.HK 1313.HK 2009.HK 601992.SS 3323.HK 1102.TW 1101.TW
Prices (07/24/2018) 48.45 37.94 28.05 1.34 9.01 2.94 3.72 8.36 39.70 45.50
Potential upside/downside 35% 50% 2% 77% 34% 46% 0% 53% 42% 44%
New rating Buy Buy Buy Buy Buy Buy Hold Buy Buy Buy
Previous rating Buy Buy Buy Buy Buy Buy Hold Buy Buy Hold
TP changes
New TP 65.40 56.80 28.53 2.37 12.09 4.28 3.72 12.75 56.51 65.51
Previous TP 60.00 48.30 28.53 2.50 11.53 5.50 4.43 12.75 43.67 45.43
% chg to TP 9% 18% 0% -5% 5% -22% -16% 0% 29% 44%
New EPS
2018E 5.17 5.17 2.81 0.27 1.19 0.50 0.50 1.11 3.79 4.37
2019E 5.50 5.50 3.26 0.33 1.31 0.70 0.70 1.39 3.86 4.74
2020E 5.99 5.99 3.70 0.33 1.38 0.70 0.70 1.71 4.08 4.74
Old EPS
2018E 4.39 4.39 2.81 0.27 1.15 0.39 0.39 1.11 2.73 2.93
2019E 4.80 4.80 3.26 0.31 1.26 0.60 0.60 1.39 2.78 3.33
2020E 5.21 5.21 3.70 0.37 1.33 0.60 0.60 1.71 2.97 3.57
% Earning revisions
2018E 18% 18% 0% 1% 3% 29% 29% 0% 39% 49%
2019E 15% 15% 0% 7% 4% 17% 17% 0% 39% 43%
2020E 15% 15% 0% -10% 4% 17% 17% 0% 37% 33%
Consensus EPS
2018E 4.29 4.29 2.67 0.21 1.04 0.36 0.36 1.09 2.76 3.77
2019E 4.36 4.36 3.04 0.22 1.06 0.41 0.41 1.21 3.17 3.70
2020E 4.44 4.44 3.26 0.24 1.06 0.43 0.43 1.23 3.06 3.90
% diff to cons
2018E 20% 20% 5% 28% 14% 39% 39% 2% 37% 16%
2019E 26% 26% 7% 49% 24% 71% 71% 14% 22% 28%
2020E 35% 35% 14% 40% 31% 64% 64% 39% 33% 22%
Valuation & Risks
We value Conch-H based We value Conch-A using We value Conch We value WCC using a We value CRC based on We value BBMG-H using We value BBMG-A using We value CNBM based on We derive our target price We value TCC based on
on 2018E 11x P/E, similar Conch-H TP with 2018E Venture using SOTP with EV/t at RMB400/t, reflecting 2018E 10x core P/E, similar SOTP with 25% BBMG-H TP with 2018E 2018E 0.9x P/B, in line with using 15x FY18E earnings, 15x FY18e, which is a slight
to historical average since CNYHKD. 30% conglormerate a fair market price for to historical average. The conglormerate discount, CNYHKD FX. its expected 8.7% ROE. which is a slight discount to discount to its 5 year
2009. discount, applying 2018E potential M&A. The TP also TP also implies 2.2x P/B on applying 50% discount to its 5 year historical average historical average of 17x.
11x P/E to cement, 13x to implies 1.4x P/B with 22% 24% ROE. NAV to property, 2018E 5x of 17x. The discount to This also implies 2x FY18
Valuation
incineration, 8x to residual ROE and 7.3x P/E, a EV/EBITDA to cement and historical average PE PB on 16% ROE. The
heat and vertical mills, and significant discount to 3x EV/EBITDA to modern reflects that that industry is discount to historical
14x to port business. industry peers due to much building materials closing in on peak margins. average PE reflects that
smaller company. that industry is closing in on
peak margins.
1. Break-down of supply 1. Break-down of supply 1. Break-down of supply 1. Break-down of supply 1. Break-down of supply 1. Break-down of supply Upside risks include 1) 1. Break-down of supply 1. Break-down of supply 1. Break-down of supply
discipline; discipline; discipline; discipline; discipline; discipline; stronger than expected discipline; discipline; discipline;
2. Higher-than-expected 2. Higher-than-expected 2. Higher-than-expected 2. Higher-than-expected 2. Higher-than-expected 2. Higher-than-expected demand, 2) higher than 2. Higher-than-expected 2. Higher-than-expected 2. Higher-than-expected
coal prices; coal prices; coal prices; coal prices; coal prices; coal prices; expected cement pricing, 3) coal prices; coal prices; coal prices;
3. Slower-than-expected 3. Slower-than-expected 3. Slower-than-expected 3. Slower-than-expected 3. Slower-than-expected 3. Slower-than-expected stronger than expected 3. Slower-than-expected 3. Slower-than-expected 3. Slower-than-expected
demand recovery demand recovery demand recovery demand recovery demand recovery demand recovery price discipline. Downside demand recovery demand recovery demand recovery
Risks risks include 1) increased
competition between
producers / price discipline
breakdown, 2) significant
rise in coal cost, 3) demand
slowdown.
Source: Deutsche Bank estimates, Bloomberg Finance LP
1H18 results calendar

For the benefit of investors following the 1H18 earnings results of companies
in China’s cement sector, we provide a calendar in the following figure and will
update it according to company announcements.
Figure 8: 1H18 earnings calendar

Company Ticker 1H18 Results Date Analyst briefing Venue Profit alert/warning Comments
Conch 0914.HK 23-Aug 28-Aug pm JW Marriott Profit alert 1H18 net profit to increase 80-100% yoy
Conch Venture 0586.HK 24-Aug 28-Aug am Conrad Profit alert 1H18 net profit to increase at least 60% yoy
CRC 1313.HK 10-Aug 13-Aug CR Building Profit alert 1H18 NP to increase significantly. ASP for 5M18 at HKD384/t, up 33.4% yoy
WCC 2233.HK 13-Aug 14-Aug at 10am JW Marriott Profit alert 1H18 NP to increase significantly. Revenue for 5M18 up 20% yoy
BBMG 2009.HK 29-Aug 3-Sep at 11am Island Shangri-la Profit alert 1H18 net profit between RMB2.4-2.6b, up 30-41% yoy
CNBM 3323.HK 27-Aug 28-Aug pm Four Seasons Profit alert Net profit up substantially yoy
ACCH 0743.HK 13-Aug NA NA
ACC 1102.TW 14-Aug NA NA
TCC 1101.TW 10-Aug NA NA
Source: Company data, Deutsche Bank

26 July 2018
China Cement
Cement trip
Figure 9: Visited locations
Source: Deutsche Bank
Key visits and meetings during the trip

■ Property consultants in Kunming, Chongqing, and Wuhan
■ Infrastructure checks from two private concrete mixers and three PPP
experts
■ Chongqing Cement Association
■ Asia Cement
■ Conch Cement
■ CR Cement
■ Huaxin Cement
■ Jidong Cement
■ CNBM - SW Cement
■ West China Cement

26 July 2018
China Cement
Lessons learnt from the

cement trip
What are cement players saying? - "Expect significant
price hikes in 2H"
2018’s slow season has defied expectations with nationwide cement prices only
falling by 1.2% since early June versus 4.5% in 2017. In Sichuan and Chongqing,
cement prices were even hiked by RMB40/t on 18 July due to start of the summer
peak shifting production halts (10 days in each month for July to Sep). A RMB50/
t price hike is also planned in Guizhou by end-Aug. In East China, clinker prices
have been raised by RMB10-30/t recently, in Zhejiang and Jiangsu, due to a clinker
shortage as a result of heightened environmental inspections. As we approach
4Q during the winter time, when pollution is worst, and demand is greatest, we
expect more unplanned production halts, likely leading to a V-shaped rebound
in cement prices similar to 4Q17.
Figure 10: Mandatory winter production halts become longer
Source: Provincial Environmental Protection Bureau, Digital Cement, Deutsche Bank

26 July 2018
China Cement
Figure 11: Production halts have been extended to summer and to more
regions
Regions No. of days Period
North China
Hebei 20 25 May - 13 Jun
Hebei Shijiazhuang 10 10 Aug - 20 Aug
Inner Mongolia 90 16 May - 16 Jun, 16 Jul - 16 Aug, 16 Sep - 16 Oct
Shanxi 60 26 Apr - 15 May, 5 Jul - 24 Jul, 21 Sep - 10 Oct
Northeast China
Heilongjiang 60 1 Jun - 15 Jun, July - Sep
Jilin 60 1 Jun - 15 Jun, July - Sep
Liaoning 60 1 Jun - 15 Jun, July - Sep
East China
Fujian 60 From CNY till 30 Aug
Jiangsu 15 1 Jun - 15 Jun
Zhenjiang city, Jiangsu 15 In Aug
Zhejiang 10 In Aug
Jiangxi 10 In 2Q
Shandong 40 1 Jun - 20 Jun, 17 Aug - 5 Sep
Anhui 6 25 Jun - 30 Jun
Central & South China
Guangdong 20 1 May - 30 Sep
Henan 60 1 Jun - 30 Jun, 1 Sep - 30 Sep
Hunan 15 In 2Q
Northwest China
Chongqing 85-110 Jan-Feb, Jun-Aug, and Nov-Dec each year till 2020
Qinghai 30 1 Jul - 30 Sep
Shaanxi c. 30 30% from Jun to Aug
Southwest China
Chengdu, Sichuan > 30 30 days in Jun - Aug
Source: Provincial Environmental Protection Bureau, Digital Cement, Deutsche Bank
Figure 12: National cement prices for P.O. 42.5 Figure 13: National cement inventory levels
RMB/t % storage capacity
450
430 430 100
428 429 423
405 406 90
400 78
80 74 72 74
69
377 65
70
350 56
337 60
332 50
300
40
30
250 260
20
200 10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0
Jan-14
Jul-14
Jan-16
Jul-17
Jul-12
Jan-13
Jul-13
Jan-15
Jul-15
Jul-16
Jan-17
Jan-18
Jul-18
Oct-12
Oct-13
Oct-17
Apr-13
Oct-14
Oct-15
Oct-16
Apr-17
Apr-14
Apr-15
Apr-16
Apr-18
2013 2014 2015 2016 2017 2018
Source: Deutsche Bank, Digital Cement Source: Deutsche Bank, Digital Cement

26 July 2018
China Cement
Figure 14: North China cement prices for P.O. 42.5 Figure 15: North China cement inventory levels
450
100
90 79 83
400 400 406 406 75
396 396 80 70 70
376 67
370 70
350 343 55
60
314 50
300 40
285 30
250 20
226
10
200 0
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Oct-12
Apr-13
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2013 2014 2015 2016 2017 2018
Figure 16: Northeast China cement prices for P.O. 42.5 Figure 17: Northeast China cement inventory levels
500
100
467 467 90
450 457
75 75
432 80 73 72
68
65
420 70 61
400
380 60
50
350 353 353 353
40
320 30
300
300 20
10
250
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jul-12
Apr-13
Jul-13
Apr-14
Jul-14
Apr-15
Jul-15
Apr-16
Jul-16
Apr-17
Jul-17
Apr-18
Jul-18
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
2013 2014 2015 2016 2017 2018
Figure 18: East China cement prices for P.O. 42.5 Figure 19: East China cement inventory levels
550
529 100
500 90 79
78
75
466 80 71
450 457 68 66
444 449 448 70
417
400 60 51
407
338 50
350
40
300 329 30
20
250 258 10
200 0
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jul-12
Apr-13
Jul-13
Apr-14
Jul-14
Apr-15
Jul-15
Apr-16
Jul-16
Apr-17
Jul-17
Apr-18
Jul-18
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
2013 2014 2015 2016 2017 2018

26 July 2018
China Cement
Figure 20: Central China cement prices for P.O. 42.5 Figure 21: Central China cement inventory levels
500 497
100
450 90
447 79 76
440 433
427 427 427 80 71 72 70
67
400 387 70 62
384 60
350
50
330
40
300
30
250 272 20
10
200 0
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Oct-12
Oct-13
Apr-13
Apr-14
Oct-14
Apr-15
Oct-15
Oct-17
Apr-16
Oct-16
Apr-17
Apr-18
2013 2014 2015 2016 2017 2018
Figure 22: South China cement prices for P.O. 42.5 Figure 23: South China cement inventory levels
500
100
90
450 447 447 443 443 427 75 78
430 421 80 71 72
68
400 70 61
383 54
60
350 360 50
40
300
30
20
250
258 10
200 0
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Apr-13
Oct-12
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
2013 2014 2015 2016 2017 2018
Figure 24: Southwest China cement prices for P.O. 42.5 Figure 25: Southwest China cement inventory levels
450
100
419 421 419 419 90
409 410 80 78
400 398 75
80 71
68 68
70 61
350 360
60
333
50
315
300 40
30
250 20
244
10
200 0
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Oct-12
Apr-13
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
2013 2014 2015 2016 2017 2018

26 July 2018
China Cement
Figure 26: Northwest China cement prices for P.O. 42.5 Figure 27: Northwest China cement inventory levels
450
100
90
400 400 397 394 80 72 72
385 387 68 71
374 374 66
70 63
350 57
60
328 50
300 304 40
302
30
250 261 20
10
200 0
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Oct-12
Oct-13
Oct-14
Apr-15
Oct-15
Oct-16
Oct-17
Apr-13
Apr-14
Apr-16
Apr-17
Apr-18
2013 2014 2015 2016 2017 2018
Yunnan
Pricing: ASP in 1H18 is about RMB350-400/t (ex-factory incl. VAT). Cement prices
increased by 25% yoy in 2017FY, and the trend has continued in 2018. The stable
pricing experienced in 2018 YTD resulted from supply discipline from cement
players as well as rising coal prices. Rainy seasons will end after September and
companies expect ASP to rebound by RMB20-30/t if environmental regulations
are not further tightened. However, there remains the risk of a breakdown in the
current price cooperation if additional capacity enters Yunnan through the cross-
province capacity swap (c.f. “Supply” section below).
Demand: 1H18’s volume increased by 4% yoy in Yunnan, and cement companies

are optimistic on demand in 2H18. There are three key drivers of cement demand
in 18FY: 1) The Belt and Road Initiative: Yunnan is one of the most lagging
regions in terms of infrastructure across China. The B&R initiative has driven
the infrastructure investment in Yunnan, and hence there are many investments
in road/highway construction. 2) Urbanization: Yunnan has one of the lowest
urbanization rates. The urbanization and municipal infrastructure development
bring cement demand. There are more than 20 Hydraulic engineering projects
in progress. 3) Poverty relief: The poverty relief projects include building roads
connecting villages and houses for villagers.
Supply: Yunnan is the only province (apart from Tibet) allowing new capacity from
cross-province capacity swap (i.e. phasing out kilns in other provinces to build
new kilns in Yunnan), starting from Jan 2018. 22mt capacity will be potentially
added to Yunnan within one or two years through the cross-province capacity
swap. Among the 22mt potential additional capacity, 6mt comes from three big
cement companies, while other comes from small private players, and capacity
of 4-5mt is not expected to be realized because these projects may not pass the
official environmental assessment or get MIIT licenses. So far, only 10mt capacity
has started the construction of the 22mt potential additional capacity, and those
being constructed must have already secured the limestone resources. Large
players are talking with the government to ban all cross-capacity swaps.
Guizhou
Pricing: Prices are materially different between those sold to private end-users
and those sold to poverty relief projects. There is a discount for cement sold
for poverty relief projects, at an ASP of c.RMB330-380/t (ex-factory incl. VAT),
compared with cement prices sold to non-poverty projects, at over RMB400/t in

26 July 2018
China Cement
1H18. The blended 1H18 ASP is around RMB340-350/t. As inventories are very
low in the region, due to strong demand, companies are optimistic on 2H18 and
expect ASP to rise by RMB50/t in August.
Demand: Cement demand is very strong, with poverty relief projects and
infrastructure as the main drivers.
Poverty relief is one of the central government’s focus areas, with a target
completion by 2020YE, but the tasks are not expected to be completed by 2024YE
in Guizhou, given that many villages are still too poor and are lagging behind.
There is a target to build 50,000 km of roads connecting the villages in Guizhou
by 2018YE, and another 22,000 km in 2019. 40% of 18FY target has been met in
1H18. Given the sufficient funding from the state (c.RMB450k per km) and strong
political incentives for execution, there is a certainty on the completion of road
construction and it drives strong cement demand.
11 highway construction projects have been started in 2017 and will be finished
by 2021. Currently Guizhou’s highway length totals 5,000 km, while the target is
10,000 km by 2022, and the investment is estimated at RMB50bn for highway
construction.
Given the poverty relief projects and infrastructure construction, demand will
remain strong in Guizhou in the coming five years.
Supply: Unlike in Yunnan, additional capacity from cross-province capacity swap

is strictly prohibited in Guizhou, although companies in Guizhou have been almost
operating at full capacity to meet the strong demand this year. Some companies
see pressure from challenging production targets to fulfill the cement demand
from poverty relief projects. All inventories are empty for cement players.
Chongqing
Pricing: ASP has been up by c.RMB60/t (ex-factory incl. VAT) in 2018 to
c.RMB350-360/t in mid-July, with a peak of c.RMB450/t in April. ASP has recently
been further raised to c.RMB400/t and it is expected to see another hike in August
by c.RMB60/t.
Demand: Cement demand in Chongqing is around 67mt a year. Property

development is the biggest demand driver in Chongqing, followed by 25% from
municipal projects, such as public rental housing and road infrastructure, while
key infrastructure projects only contribute less than 10% of demand. There is
no concern on municipal project funding, as most of the construction is done
by SOEs. 2018FY cement production is expected to grow 3% yoy. Historically,
investment in infrastructure has an opposite trend to investment in property,
indicating that investment in infrastructure serves as a buffer to offset a slowdown
in the property market.
Supply: Total capacity in Chongqing is c.92mt, and there is an overcapacity

problem compared with the 67mt demand. The problem is further compounded
by cement imported on the northwest border from Sichuan. Production halts are
well complied with by leading companies. Production halts in 2017 totaled 100
days, and this number is expected to increase to 110 days in 2018 to 2020 in
central and west Chongqing, and 85 days in east Chongqing. It is expected to

26 July 2018
China Cement
see differentiation in production halts where kilns with solid waste co-processing
technology and/or lower pollutant emissions can be partially exempted.
Hubei
Pricing: Ex-factory ASP of RMB390/t in July 2018, similar to levels in 1H18.
Demand: 60-65% of cement demand comes from municipal projects, followed

by 20% from property development and 10% from key infrastructure. Cement
demand is not dropping in Hubei, although the production volume has decreased
yoy, mainly due to cement imports from neighboring provinces.
Supply: The target number of days for production halts in Hubei is 60 in 2018,
compared with the target of 75 days last year but the actual production halts
executed were 60 days. In Hubei, the execution of production halts relied on
companies’ self-discipline in 2017 but that has become more strict in 2018. In
Chongqing, the governments proactively monitor and force companies to execute
halts.
What did infrastructure PPP project / fund management

experts say?
One of the top agenda items in the 13th Five Year Plan is "poverty relief" and
that has become a clear bright spot for cement demand in 2018. By 2020, all
rural villages in China need to be connected with a cement paved road and
local governments are facing a lot of pressure to finish this gargantuan task. For
example, in Guizhou (1H18 demand up 9.6%), the relief work involves building
50,000 km of roads by the end of 2018 to join all villages together and further
connecting them to highways directly. Only 40% of the work has thus far been
completed in 1H18 with the work back-end loaded in 2H. Due to the shear size
of the project, c.60% of the cement produced by CNBM Guizhou went directly
to poverty projects with all cement players in Guizhou having zero inventory
currently.
Figure 28: Construction targets by 2020YE set by the Figure 29: Population out of poverty (in thousands)
13th FYP for poverty relief
Total 2018 Accumulation
Province 2018 target
Highways 16,000 km 5,000 km in 5 years
National highways (guodao) 46,000 km 16,000 km Sichuan 5,760 1,000
Roads connecting villages 230,000 km 200,000 km Guizhou 6,708 1,200
Number of village bridges 15,000 na
Anhui 5,589 700
Roads for tourism development 50,000 km na
Village road renovation 230,000 km na
Hunan 5,510 1,300
Bus stations 150 na Hubei 4,500 1,046
Village service stations 1,100 na Henan 5,770 1,100
Number of key railway projects 34 na Guangxi 6,090 950
Number of key highway projects 165 na Yunnan 5,560 1,450
Number of key airport projects 24 na
Shaanxi 5,010 997
Shandong 5,000 600
Source: State Council, Ministry of Transport, Deutsche Bank Source: Provincial governments, Deutsche Bank

26 July 2018
China Cement
Figure 30: Infrastructure construction sites are Figure 31: Infrastructure project in Guiyang
commonly seen in Kunming
Source: Deutsche Bank Source: Deutsche Bank
Beyond poverty relief, municipal infrastructure projects, often financed using PPP,
were a huge driver of cement demand (c.30%) and visibility for those projects
will last over the next few years. During 1Q18, RMB1.2 trillion of low return PPP
projects were removed from the database and this process is now complete, with
projects now resuming normal construction. By Mar 18, RMB5.5 trillion or 48%
of the projects that have received approvals are under the execution stage, up
139% from March 2017. Our chief economist, Zhang Zhiwei, also believes that
with the government now confirming a policy easing stance for 2H, infrastructure
investment will rebound from 7.3% in 1H to 10% in 2H.
Figure 32: DB believes infrastructure FAI will rebound to Figure 33: Projects in execution stage up 100% yoy as at
10% in 2H after a slowdown in 1H May 2018
40% RMB bn
14,000 500%
35% 450%
12,000
30% 400%
10,000 350%
25% 300%
8,000
20% 250%
6,000 200%
15%
4,000 150%
10%
100%
2,000
5% 50%
0% - 0%
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Feb-13
Feb-17
Feb-18
Feb-14
Feb-15
Feb-16
All FAI Infrastructure Property Manufacturing

Preparation Purchase Execution Execution YoY growth (RHS)
Source: NBS, Deutsche Bank Source: Ministry of Finance, Deutsche Bank

26 July 2018
China Cement
Figure 34: 1,160 PPP projects were removed in 1Q18 Figure 35: PPP projects with investment of RMB1.2tn
were removed in 1Q18
Shandong, 160
Xinjiang, 222
Others, 449 Xinjiang, 149
Others, 581
Shandong, 206
Inner
Mongolia, 144
Jiangxi, 65 Inner Yunnan, 88

Hunan, 66 (in RMB bn) Hunan, 79
Mongolia, 152
Source: Ministry of Finance, Deutsche Bank Source: Ministry of Finance, Deutsche Bank
Figure 36: PPP projects by project type - number of Figure 37: PPP projects by project type - investment
projects as at May 2018 amounts as at May 2018
Municipal
Others, 24% construction,
Others, 30% Municipal 28%
construction,
36%
Water
conservancy, 3%
Water Economic
conservancy, 4%
Travel, 5%
Economic
Travel, 6% Environmental,
Transport, 14% 6% Transport, 30%
Environmental,
7%
Source: Ministry of Finance, Deutsche Bank Source: Ministry of Finance, Deutsche Bank
Guizhou
Most industry funds investing for the government have become zombie funds,
as most of the funding has ceased since January, when banks stopped providing
funding. Most of the funds focusing on infrastructure are heavily indebted and
the government no longer allows further borrowing for new projects. Credit has
been tightened in Guizhou, reflected by the suspension of the second subway line
construction due to a funding shortage last year, while the project was expected
to be completed by 2017YE. One of the solutions is to invite large developers
like Vanke and Evergrande to invest in the subway project. Although Guizhou
has been one of the provinces with the highest GDP growth over the past five
years, the GDP was driven by FAI which brought lots of debt and has led to net
gearing of 180% and 360% for Guizhou and Guiyang respectively. PPP projects
are rare in Guizhou and therefore local government funded most of the projects.
Fortunately, the funding specialized for poverty relief projects comes from the
central government instead of provincial or local governments.
Chongqing
The recent clean-up of the PPP database aims at clamping down on inappropriate
PPP projects including: 1) projects disguised in PPP without actual operation; 2)

26 July 2018
China Cement
projects with no or low operational returns; 3) projects that are inappropriately

guaranteed by governments. The PPP database clean-up does not imply the
ceasing of PPP projects, but instead the profitability of projects become important
to getting approval and funding in the future because the required return
has become stricter. Therefore infrastructure construction slowed in 1H18. In
Chongqing, most of the PPP projects do not involve the private sector. Having said
that, it may take a longer time to reflect the slowdown while the existing projects
can last till at least 1H19, as local government can utilize the land resources to
participate in some development projects.
Hubei
There were 80+ new PPP projects signed in June 2018, with the construction
period expected to begin in 2019 with a lag of 6-12 months in general. Water
conservancy projects have accounted for the biggest pie of PPP projects, and
these projects are required to be completed by 2018YE. In 2017FY, the average
IRR of PPP projects is c.6.4%, and the IRR in 2018 is expected to increase. The
recent PPP reform focuses on cleaning up inappropriate projects, while there are
growing new projects and the number of projects entering the PPP database is
still increasing.
What did the property experts say? - "Housing prices can

only go higher"
Despite increased property restrictions, the desire to buy property remains as
strong as ever. Sell-through rates for new homes are c.100%, as the expectation
of Chinese citizens is that property prices cannot drop, as land prices continue to
make new highs. The catch is, of course, that the government controls the land
prices so they too want higher prices, as land sales are a significant contributor to
government revenues. For 1H18, commodity property floor area sold is up 3.3%
yoy but in reality that figure is significantly higher. Most local governments are
trying to align with the central government's rhetoric of "houses are for living and
not for speculation", and have delayed the online registration to massage the data.
A more telling figure is GFA starts, which is up 11.8%, and we believe this will stay
strong due to record sales in land and property sold. With property inventories at
an all-time low, the property market will continue to enter a restocking phase in
the next few years, supporting solid demand growth.

26 July 2018
China Cement
Figure 38: Commodity GFA sold is up 3.3% yoy Figure 39: Commodity GFA started has increased by
according to official data, while the actual growth is 11% yoy in 1H18
much higher because of the delay of online registration
1,800 60% 2,500 80%
1,600 50%
60%
1,400 40% 2,000
1,200 30% 40%

1,500
1,000 20%
20%
800 10%
1,000
600 0% 0%
400 -10% 500

-20%
200 -20%
0 -30% 0 -40%
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Dec-12
Jun-13
Jun-14
Dec-14
Jun-15
Jun-16
Dec-16
Jun-17
Jun-18
Dec-08
Dec-09
Dec-10
Dec-11
Dec-13
Dec-15
Dec-17
Jun-08
Dec-08
Jun-09
Dec-09
Dec-10
Jun-11
Dec-11
Jun-10
Jun-12
Dec-12
Jun-13
Dec-13
Dec-14
Jun-16
Dec-16
Jun-14
Jun-15
Dec-15
Jun-17
Dec-17
Jun-18
Commodity GFA sold (msqm) YoY Commodity GFA started (msqm) YoY
Source: NBS, Deutsche Bank Source: NBS, Deutsche Bank
Figure 40: Land sales is recovering from the low point in Figure 41: National property inventory is 10-month on
2015 average, around the lowest level over the past five years
140 350%
300%
(month)
120 25
250%
100
200%
20
80 150%
60 100% 15 13.6
50%
40
0% 10
20
-50% 10.1
0 -100% 5
Feb-11
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Feb-18
Jun-10
Jun-16
Jun-17
Jun-18
Oct-10
Jun-11
Oct-11
Jun-12
Oct-12
Jun-13
Oct-13
Jun-14
Oct-14
Jun-15
Oct-15
Oct-16
Oct-17
0
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-10
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Mthly Land Area Sold (msqm) YoY
Source: NBS, Deutsche Bank Source: NBS, Deutsche Bank

26 July 2018
China Cement
Figure 42: Construction site of a shanty-town renovation Figure 43: New residential property along the railway
project in Kunming from Kunming to Guiyang
Figure 44: Property construction in Chongqing Figure 45: Property construction in Wuhan
Kunming
Land market: Land prices have doubled since 2016. The average land price was
c.RMB7,350 per sqm in 17FY, and rose to c.RMB10,730 per sqm in 1H18. Land
sold in 17FY totaled c.5.3 million sqm, while land supply is only c.1.9 million
sqm in 1H18, with a target total supply of c.4.3 million sqm in 18FY. Given that
the land supply has reduced, it is more difficult for property developers to get
land. However, previously, there were many suspended and unfinished property
projects, and therefore many property developers takeover the unfinished projects
and the associated lands.
Property sales: According to government statistics, GFA sold in 1H18 increased

by 16% yoy to c.6.4 million sqm, with most of the sales concentrated in south
Kunming. GFA sold in 17FY totaled c.10.6 million sqm, equivalent to 10% growth
yoy, with ASP up 28% yoy to c.RMB9,837 per sqm. ASP further rose in 1H18 to

26 July 2018
China Cement
c.RMB1,1630 per sqm, up 23% yoy. Nevertheless, based on the data tracked by
Centaline, the number of flats sold in 1H18 has risen 183% yoy versus the 16%
growth rate from official data. Therefore, sales in 1H18 are actually booming, and
30-40% of total sales came from secondary housing markets.
Housing market supply: Residential property supply in 1H18 totaled c.5.2 million
sqm, but it will catch up in 2H18, with a forecast of c.7.5 million sqm, leading to
total supply in 18FY of c.12.7 million sqm, up 15% yoy from 17FY’s c.11 million
sqm. The sell-through rate reached the highest level in 1H18 at 82% from 48%
and 76% in 2016 and 2017 respectively.
Policies: MOHURD made it very public that they will not loosen the property
policy in 2H18, to clamp down speculation, although a looser credit environment
is expected in general.
Restrictive policies have been seen since Oct 2017:
■ Oct 2017: flats cannot be sold within two years of purchase; and
■ Mar 2018: the restriction period is further tightened from two years to
three years as, with down-payment up from 35% to 45% for the second
flat;
■ Jul 2018: each non-local buyer can only buy one new flat in the core and
popular areas in Kunming. First-hand flats with a price hike of 6% in the
past 12 months are not allowed to be sold.
Having said that, the policies in Kunming are relatively loose compared with
other cities, and do not involve the credit or LTV, so we expect another round of
tightening in 2H18. Therefore, developers are rushing to sell their flats as soon as
possible, as they foresee tight cashflows.
Chongqing
Land market: In 2017FY, property developers rolled out many new property
launches, and the volume of land selling continues to climb by 11.4% yoy
in 1H18, while land sales turned weak in June and July. Land costs reached
RMB8,000-10,000 per sqm.
Property sales: Property sales volume reached a historical peak in 1H18. ASP in
Chongqing took off in 2H17, triggered by the climbing house prices across the
nation, such that Chongqing’s flats were relatively cheap. 40% of flat purchases
come from non-local buyers. Current ASP is c.RMB11,000 per sqm. Demand is
so strong that around 90% of flats can be sold immediately after being launched
to the market.
Housing market supply: Supply is tight in Chongqing. Residential inventory

is equivalent to three months based on the past 12 months' rolling sales.
Commercial property inventories total 27m sqm, of which 6m sqm is for
residential property. Monthly turnover of apartment sales is around 2m sqm.
Given that housing market supply is tight in contrast to booming demand, the
actual down-payment rate is much higher than the 30% floor set by regulation.
Policies: There is an existing policy on property tax, which requires non-local

buyers to pay 0.5%-1.2% taxes each year. However, there is no purchase
restriction for non-local buyers, albeit they are required to make 100% down-

26 July 2018
China Cement
payment. Further purchase restrictions are not expected, though it has recently
been prohibited to sell flats on the market within two years of purchase. Policies
in Chongqing are still relatively loose.
Wuhan
Land market: Land sales were relatively weak in 1H18, but this was a temporary
phenomenon, because of 1) the NPC and CPPCC taking place in 1H; and 2) the
low transparency in the land sales process. As the ratio of land sales via the online
bidding system will rise to 90%, we expect land sales to rebound in 2H18.
Property sales: Unlike 2017FY, when all types of apartments were popular, in
1H18, sales volume was concentrated in flats with an ASP of c.RMB18,000/sqm,
which have a 94% sell-through rate, while the high-end market, with an ASP of
c.RMB25,000/sqm or above, has a 74% sell-through rate, resulting in an average
sell-through rate of 80-90%, which is still very high. 22mn sqm were sold in
2017FY, of which 7.5mn sqm came from shanty-town renovation.
Housing market supply: While housing supply in 1Q18 was down because
developers were waiting for more clarity on property market policies, supply has
rebounded since June, and new launches have risen 15% yoy in 1H18. New
supply in 2018FY will reach 30mn sqm, of which 20mn sqm will be launched
in 2H18. Currently c.60% of demand is contributed by buyers for investment
purposes.
Policies: The weight of monetized resettlement in Wuhan’s shanty-town

renovation projects is 60% and this ratio will be stable. Coming policies may
include: 1) Extending the purchase restriction to the whole of Wuhan instead
of just the central districts; 2) Restricting companies from purchasing flats; 3)
Restricting sales within three years of purchase (vs. five years in Changsha); and
4) Introducing shared properties with 50% of ownership going to the government.
According to the experience in other cities, the prices of shared properties have
a discount of c.18% because of lower attractiveness for investors.
What did concrete mixers say?

Guizhou
Demand in 2017FY was 300m cu.m, up 27% yoy. Large property developers
have recently entered Guizhou with major real estate projects which will take
3-5 years to complete, and currently 70% of concrete production is sold to
property developers. There are observations that accounts receivable in the RMC
industry have increased significantly to c.RMB150m compared with RMB200mn
in revenues. There is increasing pressure to get cash back from both property
developers and local government, as developers might utilize their bargaining
power and allocate the capital to projects in other regions while local government
has tight cashflows for its Gui’an new district projects. Although cement prices
have increased a lot, concrete mixers are more sensitive to aggregate prices,
which have increased from RMB37/t to RMB53/t. Concrete mixers have little
bargaining power as the industry has too many players. There are c.150 concrete
mixers in Guizhou, of which c.85 do not have a license.
Hubei
As the costs of raw materials have been increasing, the profitability of concrete
mixers has been dropping in the last two years. Average raw material costs have

26 July 2018
China Cement
reached c.RMB270/cu.m. Due to the increasing costs of raw materials, some

concrete mixing stations would rather not take the orders if they are not paid in
cash, and hence the problems of accounts receivable are not as serious as in
Guizhou. The utilization rate in Wuhan is not high: around 10% of stations have
few production activities and another 10% are operating at 50% of full capacity.
The concrete mixer expects cement prices in Wuhan to rise in 2H18, as there is
strong demand from projects catching the completion deadline. As Wuhan is the
host for the 2019 Military World Games, there are lots of municipal infrastructure
projects to be completed by Oct 2018, including the accommodation center for
athletes, four subway lines, and a few bridges.

26 July 2018
China Cement
Valuation
Less cyclical earnings and higher dividends supports higher trading multiples
Post our trip, we have updated our model to reflect a more positive 2H18 outlook
by upgrading our ASP assumptions. We value most stocks under our coverage
using P/E-based valuations, with bellwether Conch being the premium company
at 11x and others trading at a discount to Conch. We see average earnings
growing 104% in FY18. Separately, cash returns are also increasing for cement
players, with an average dividend yield of 5.6%, and the highest coming from
TCC and CRC at 8% and 7.5% respectively. We also raise our TPs for the two
Taiwanese cement players.
We upgrade TCC from Hold to Buy after raising earnings by 49%. The earnings
upgrade is due to extremely strong cement prices which are up 25% yoy for 1H18
nationwide and 35% yoy for southern China, which is TCC's core operating region.
TCC is also one of the key beneficiaries of the Greater Bay Area development plan
which we expect to be announced within 2018, providing an imminent catalyst
for the stock.
Figure 46: Dividend yield comparison

9.0%
8.0%
8.0% 7.5%
6.8%
7.0% 6.5%
6.1%
6.0% Average: 5.6%
5.0% 4.6%
4.0% 4.0%
4.0%
3.0% 2.7%
2.0%
1.0%
0.0%
TCC CRC Conch-A ACC WCC Conch-H CNBM BBMG-H BBMG-A
Valuation charts

26 July 2018
China Cement
Figure 47: Conch's 12m-fwd PE Figure 48: Conch's 12m-fwd PB
Source: Deutsche Bank estimates, Bloomberg Finance LP Source: Deutsche Bank estimates, Bloomberg Finance LP
Figure 49: Conch's 12m-fwd EV/EBITDA Figure 50: Conch's 12m-fwd EV/Capacity
Figure 51: CV's 12m-fwd PE Figure 52: CV's 12m-fwd PB

26 July 2018
China Cement
Figure 53: CV's 12m-fwd EV/EBITDA Figure 54: CV's price spread
Figure 55: CRC's 12m-fwd PE Figure 56: CRC's 12m-fwd PB
Figure 57: CRC's 12m-fwd EV/EBITDA Figure 58: CRC's 12m-fwd EV/Capacity

26 July 2018
China Cement
Figure 59: WCC's 12m-fwd PE Figure 60: WCC's 12m-fwd PB
Figure 61: WCC's 12m-fwd EV/EBITDA Figure 62: WCC's 12m-fwd EV/Capacity
Figure 63: BBMG's 12m-fwd PE Figure 64: BBMG's 12m-fwd PB

26 July 2018
China Cement
Figure 65: BBMG's 12m-fwd EV/EBITDA Figure 66: BBMG's 12m-fwd EV/Capacity
Figure 67: CNBM's 12m-fwd PE Figure 68: CNBM's 12m-fwd PB
Figure 69: CNBM's 12m-fwd EV/EBITDA Figure 70: CNBM's 12m-fwd EV/Capacity

26 July 2018
China Cement
Figure 71: ACC's 12m-fwd PE Figure 72: ACC's 12m-fwd PB
Figure 73: ACC's 12m-fwd EV/EBITDA Figure 74: ACC's 12m-fwd EV/Capacity
Figure 75: TCC's 12m-fwd PE Figure 76: TCC's 12m-fwd PB

26 July 2018
China Cement
Figure 77: TCC's 12m-fwd EV/EBITDA Figure 78: TCC's 12m-fwd EV/Capacity

26 July 2018
China Cement
Model updated: 25 July 2018 Fiscal year end 31-Dec 2015 2016 2017 2018E 2019E 2020E
Running the numbers Financial Summary
Asia DB EPS (CNY) -0.03 0.03 0.10 0.29 0.33 0.39
Reported EPS (CNY) -0.06 0.00 0.13 0.27 0.33 0.39
China DPS (CNY) 0.00 0.00 0.03 0.07 0.12 0.16
BVPS (CNY) 1.1 1.1 1.2 1.5 1.7 2.0
Weighted average shares (m) 5,000 5,421 5,429 5,429 5,435 5,435
Average market cap (CNYm) 5,145 5,490 5,333 6,215 6,215 6,215
West China Cement Enterprise value (CNYm) 8,568 8,167 7,614 7,103 5,264 3,820
Reuters: 2233.HK Bloomberg: 2233 HK
Valuation Metrics
P/E (DB) (x) nm 29.6 9.6 3.9 3.4 2.9
Buy P/E (Reported) (x) nm 532.8 7.5 4.2 3.4 2.9
P/BV (x) 1.20 0.69 0.84 0.79 0.67 0.57
Price (24 Jul 18) HKD 1.32
FCF Yield (%) nm 12.3 19.1 22.3 33.7 30.9
Dividend Yield (%) 0.0 0.0 2.6 6.0 10.2 13.6
Target Price HKD 2.37
EV/Sales (x) 2.4 2.2 1.6 1.2 0.9 0.6
52 Week range HKD 1.04 - 1.63 EV/EBITDA (x) 12.9 7.2 3.9 2.6 1.7 1.1
EV/EBIT (x) nm 22.8 6.5 3.5 2.2 1.4
Market cap (m) HKDm 7,157.7
USDm 912.2 Income Statement (CNYm)
Sales revenue 3,501 3,719 4,760 5,749 6,111 6,548
Company Profile Gross profit 463 677 1,186 2,216 2,489 2,843
West China Cement Limited is a leading producer of cement EBITDA 664 1,131 1,955 2,767 3,112 3,435
and clinker in North Western China, currently operating in Depreciation 703 772 781 744 716 686
Shaanxi and Xinjiang provinces. The company employs NSP Amortisation 0 0 0 0 0 0
technology in all of its production lines. EBIT -38 359 1,174 2,024 2,396 2,749
Net interest income(expense) -218 -249 -216 -53 5 51
Associates/affiliates 0 10 16 24 30 40
Exceptionals/extraordinaries 0 0 0 0 0 0
Other pre-tax income/(expense) 0 0 0 0 0 0
Profit before tax -257 110 958 1,971 2,400 2,800
Price Performance Income tax expense 51 104 248 473 581 681
1.75 Minorities 2 5 15 32 39 46
1.5 Other post-tax income/(expense) 0 0 0 0 0 0
Net profit -309 10 711 1,489 1,810 2,114
1.25
1 DB adjustments (including dilution) 157 175 -157 100 0 0
DB Net profit -152 186 554 1,589 1,810 2,114
0.75
0.5
Jan '17 Jul '17 Jan '18 Jul '18 Cash Flow (CNYm)
West China Cement HANG SENG INDEX (Rebased) Cash flow from operations 211 1,051 1,512 1,891 2,501 2,324
Net Capex -336 -377 -494 -500 -400 -400
Margin Trends Free cash flow -125 674 1,018 1,391 2,101 1,924
60
Equity raised/(bought back) 1,204 0 0 0 0 0
Dividends paid -9 -1 -16 -141 -372 -634
40 Net inc/(dec) in borrowings -665 -78 -124 -384 -31 29
Other investing/financing cash flows 758 207 -762 136 113 152
20
Net cash flow 1,163 802 116 1,002 1,811 1,472
0 Change in working capital -391 93 56 -188 179 -219
-20
15 16 17 18E 19E 20E Balance Sheet (CNYm)
EBITDA Margin EBIT Margin Cash and other liquid assets 528 1,346 1,452 2,470 4,287 5,766
Tangible fixed assets 8,257 7,564 7,137 6,906 6,603 6,330
Growth & Profitibility Goodwill/intangible assets 1,030 999 945 942 940 938
30 40 Associates/investments 0 41 57 81 111 151
Other assets 1,568 1,233 2,080 2,364 2,318 2,685
20 30
Total assets 11,382 11,182 11,672 12,764 14,259 15,869
10 20 Interest bearing debt 3,904 4,013 3,740 3,356 3,326 3,355
0 10 Other liabilities 1,575 1,255 1,303 1,398 1,447 1,503
-10 0 Total liabilities 5,479 5,268 5,043 4,755 4,773 4,857
-20 -10 Shareholders' equity 5,856 5,863 6,579 7,927 9,365 10,845
15 16 17 18E 19E 20E Minorities 47 51 50 82 121 167
Total shareholders' equity 5,904 5,913 6,629 8,009 9,486 11,012
Sales growth (LHS) ROE (RHS) Net debt 3,376 2,667 2,288 886 -962 -2,411
Solvency Key Company Metrics

75 40
50 30 Sales growth (%) -9.8 6.2 28.0 20.8 6.3 7.2
DB EPS growth (%) na na 198.4 186.7 13.8 16.8
25 20
EBITDA Margin (%) 19.0 30.4 41.1 48.1 50.9 52.5
0 10 EBIT Margin (%) -1.1 9.6 24.7 35.2 39.2 42.0
-25 0 Payout ratio (%) nm 0.0 19.9 25.0 35.0 40.0
-50 -10 ROE (%) -5.7 0.2 11.4 20.5 20.9 20.9
15 16 17 18E 19E 20E Capex/sales (%) 10.0 10.2 10.9 8.7 6.5 6.1
Capex/depreciation (x) 0.5 0.5 0.7 0.7 0.6 0.6
Net debt/equity (LHS) Net interest cover (RHS)
Net debt/equity (%) 57.2 45.1 34.5 11.1 -10.1 -21.9
Johnson Wan Net interest cover (x) nm 1.4 5.4 38.1 nm nm
+852 2203 6163 johnson.wan@db.com Source: Company data, Deutsche Bank estimates

26 July 2018
China Cement
Asia DB EPS (CNY) 1.42 1.62 3.00 5.17 5.50 5.99
Reported EPS (CNY) 1.42 1.62 3.00 5.17 5.50 5.99
China DPS (CNY) 0.43 0.50 1.20 2.58 3.30 4.19
BVPS (CNY) 13.2 14.4 16.8 19.4 21.6 23.4
Anhui Conch Cement Enterprise value (CNYm) 110,177 83,537 113,658 183,592 173,642 164,326
Reuters: 600585.SS Bloomberg: 600585 CH
Valuation Metrics
P/E (DB) (x) 14.4 9.9 7.7 7.4 7.0 6.4
Buy P/E (Reported) (x) 14.4 9.9 7.7 7.4 7.0 6.4
P/BV (x) 1.29 1.18 1.75 1.98 1.78 1.64
Price (24 Jul 18) CNY 38.41
FCF Yield (%) 3.6 8.6 10.6 13.3 13.0 14.7
Dividend Yield (%) 2.1 3.1 5.2 6.7 8.6 10.9
Target Price CNY 56.80
EV/Sales (x) 2.2 1.5 1.5 1.8 1.7 1.5
52 Week range CNY 22.90 - 38.41 EV/EBITDA (x) 7.3 4.9 4.4 4.5 4.1 3.6
EV/EBIT (x) 10.3 6.9 5.4 5.1 4.6 4.0
Market cap (m) CNYm 208,923
USDm 30,663 Income Statement (CNYm)
Sales revenue 50,976 55,932 75,311 99,876 103,790 108,914
Company Profile Gross profit 13,709 17,536 25,522 43,020 45,007 48,110
Anhui Conch Cement Company Limited produces and sells EBITDA 15,146 16,878 26,023 40,847 42,650 45,933
ordinary portland cement, portland blast furnace slag cement, Depreciation 4,459 4,753 4,831 4,647 4,820 5,342
compound cement, and commercial clinker. The company Amortisation 0 0 0 0 0 0
sells its products under the Conch, Hailuo and Huangshan EBIT 10,686 12,125 21,191 36,200 37,830 40,591
trademarks. Net interest income(expense) -563 -329 -36 754 1,474 2,240
Associates/affiliates -38 -97 120 131 144 157
Profit before tax 10,086 11,699 21,275 37,085 39,447 42,988
Price Performance Income tax expense 2,440 2,703 4,800 8,715 9,270 10,102
40 Minorities 106 423 576 992 1,055 1,150
Other post-tax income/(expense) 0 0 0 0 0 0
30 Net profit 7,539 8,574 15,899 27,378 29,122 31,736
DB adjustments (including dilution) 0 0 0 0 0 0
20
DB Net profit 7,539 8,574 15,899 27,378 29,122 31,736
10
Anhui Conch Cement HANG SENG INDEX (Rebased) Cash flow from operations 8,944 12,191 16,668 34,431 32,984 35,495
Net Capex -5,075 -4,865 -3,577 -7,419 -6,619 -5,619
Margin Trends Free cash flow 3,869 7,326 13,091 27,012 26,365 29,876
50
Equity raised/(bought back) 0 0 0 0 0 0
Dividends paid -3,918 -2,559 -2,782 -13,689 -17,473 -22,215
40 Net inc/(dec) in borrowings 2,900 5,705 1,827 -3,121 -2,617 -795
Other investing/financing cash flows -11,057 -8,978 -7,475 -3,299 1,226 1,673
30
Net cash flow -8,206 1,494 4,661 6,903 7,501 8,539
20 Change in working capital -172 -1,275 -3,072 2,920 101 72
10
EBITDA Margin EBIT Margin Cash and other liquid assets 14,471 15,586 24,760 36,337 44,583 54,096
Growth & Profitibility Goodwill/intangible assets 8,325 8,783 9,309 9,672 10,023 10,361
60 30 Associates/investments 6,225 6,251 3,252 3,383 3,527 3,684
Other assets 12,652 14,233 21,528 24,997 25,671 26,614
40 25 Total assets 105,781 109,514 122,143 140,092 150,955 161,845
Other liabilities 13,052 13,556 16,474 22,863 23,639 24,653
0 15 Total liabilities 32,237 29,536 30,453 33,722 31,880 32,099
-20 10 Shareholders' equity 70,148 76,309 89,150 102,839 114,488 124,008
15 16 17 18E 19E 20E Minorities 3,397 3,669 2,539 3,532 4,587 5,737
Sales growth (LHS) ROE (RHS) Net debt 4,713 395 -10,781 -25,479 -36,341 -46,650

60 800
40 600 Sales growth (%) -16.1 9.7 34.6 32.6 3.9 4.9
DB EPS growth (%) -31.3 13.7 85.4 72.2 6.4 9.0
20 400
EBITDA Margin (%) 29.7 30.2 34.6 40.9 41.1 42.2
0 200 EBIT Margin (%) 21.0 21.7 28.1 36.2 36.4 37.3
-20 0 Payout ratio (%) 30.2 30.9 40.0 50.0 60.0 70.0
-40 -200 ROE (%) 11.1 11.7 19.2 28.5 26.8 26.6
15 16 17 18E 19E 20E Capex/sales (%) 10.1 8.9 4.9 7.4 6.4 5.2
Net debt/equity (%) 6.4 0.5 -11.8 -24.0 -30.5 -36.0
Johnson Wan Net interest cover (x) 19.0 36.9 581.6 nm nm nm

26 July 2018
China Cement
Asia DB EPS (TWD) 1.56 1.72 2.03 4.37 4.57 4.74
Reported EPS (TWD) 1.56 1.72 2.03 4.37 4.57 4.74
Taiwan DPS (TWD) 1.25 1.45 1.71 3.68 3.85 3.99
BVPS (TWD) 29.3 28.9 32.1 32.8 33.5 34.3
Average market cap (TWDm) 139,579 121,853 131,392 167,994 167,994 167,994
Taiwan Cement Enterprise value (TWDm) 225,447 194,454 169,842 219,074 205,030 208,516
Reuters: 1101.TW Bloomberg: 1101 TT
Valuation Metrics
P/E (DB) (x) 24.2 19.2 17.3 10.4 10.0 9.6
Buy P/E (Reported) (x) 24.2 19.2 17.3 10.4 10.0 9.6
P/BV (x) 0.93 1.22 1.14 1.39 1.36 1.33
Price (24 Jul 18) TWD 45.50
FCF Yield (%) 13.7 12.7 8.2 4.9 19.1 10.5
Dividend Yield (%) 3.3 4.4 4.9 8.1 8.5 8.8
Target Price TWD 65.51
EV/Sales (x) 2.4 2.2 1.7 1.7 1.6 1.6
52 Week range TWD 33.40 - 46.00 EV/EBITDA (x) 12.9 9.6 7.7 5.4 4.8 4.8
EV/EBIT (x) 22.3 14.8 11.0 6.4 5.7 5.6
Market cap (m) TWDm 167,994
USDm 5,467.7 Income Statement (TWDm)
Sales revenue 93,679 89,564 98,312 125,237 126,930 127,300
Taiwan Cement is the largest cement manufacturer in Taiwan. EBITDA 17,528 20,156 22,084 40,944 42,442 43,602
The company entered the China market in late 1990s and owns Depreciation 7,419 6,991 6,581 6,447 6,624 6,503
59mmtpa of cement and slagpowder capacity in China as well Amortisation 0 0 0 0 0 0
as several projects that are under construction. Its major focus EBIT 10,109 13,165 15,504 34,496 35,818 37,099
is in the greater Guangdong market. Through its subsidiaries, Net interest income(expense) -1,443 -1,650 -1,679 -1,528 -1,336 -1,300
the company also operates in transportation, construction and Associates/affiliates 0 0 0 0 0 0
information products businesses. Exceptionals/extraordinaries 0 0 0 0 0 0
50 Minorities 1,150 2,484 2,729 6,182 6,465 6,712
45 Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 5,776 6,358 7,594 18,545 19,396 20,137
40
35
DB Net profit 5,776 6,358 7,594 18,545 19,396 20,137
30
Jan '17 Jul '17 Jan '18 Jul '18
Cash Flow (TWDm)
Taiwan Cement
Taiwan Stock Exchange (TWSE) (Rebased) Cash flow from operations 21,763 18,750 12,311 23,423 41,176 24,533
Net Capex -2,638 -3,320 -1,526 -14,000 -4,270 -4,322
40
Dividends paid -11,963 -7,210 -7,613 -15,614 -16,331 -16,955
30 Net inc/(dec) in borrowings 2,927 -17,024 1,837 0 -1,592 -6,810
Other investing/financing cash flows -826 -1,208 -6,244 -1,528 -1,336 -1,300
20
Net cash flow 9,263 -10,012 -1,235 -7,719 17,646 -4,854
10 Change in working capital 8,096 1,812 -5,627 -8,007 8,625 -8,848
0
15 16 17 18E 19E 20E Balance Sheet (TWDm)
Other assets 89,970 87,923 93,436 104,963 95,381 105,217
40 12.5
Total assets 293,066 266,989 272,557 285,216 292,224 296,323
0 7.5 Other liabilities 31,977 31,529 34,199 37,746 36,815 37,830
-40 2.5 Shareholders' equity 108,043 106,768 136,348 139,279 142,344 145,526
15 16 17 18E 19E 20E Minorities 47,441 40,629 16,299 22,481 28,946 35,658
Sales growth (LHS) ROE (RHS) Net debt 66,628 59,883 59,380 67,098 47,860 45,904

60 30
Sales growth (%) -20.8 -4.4 9.8 27.4 1.4 0.3
40 20 DB EPS growth (%) -46.7 10.1 17.9 115.0 4.6 3.8
EBITDA Margin (%) 18.7 22.5 22.5 32.7 33.4 34.3
20 10 EBIT Margin (%) 10.8 14.7 15.8 27.5 28.2 29.1
Payout ratio (%) 80.0 84.2 84.2 84.2 84.2 84.2
0 0 ROE (%) 5.1 5.9 6.2 13.5 13.8 14.0
15 16 17 18E 19E 20E Capex/sales (%) 2.9 3.8 1.8 11.2 3.4 3.4
Net debt/equity (%) 42.9 40.6 38.9 41.5 27.9 25.3
Johnson Wan Net interest cover (x) 7.0 8.0 9.2 22.6 26.8 28.5

26 July 2018
China Cement
Asia DB EPS (CNY) 1.42 1.62 3.00 5.17 5.50 5.99
Reported EPS (CNY) 1.42 1.62 3.00 5.17 5.50 5.99
China DPS (CNY) 0.43 0.50 1.20 2.58 3.30 4.19
BVPS (CNY) 13.2 14.4 16.8 19.4 21.6 23.4
Anhui Conch Cement Enterprise value (CNYm) 110,177 83,550 113,656 183,592 173,642 164,326
Valuation Metrics
P/E (DB) (x) 14.2 10.2 8.3 8.2 7.7 7.1
Buy P/E (Reported) (x) 14.2 10.2 8.3 8.2 7.7 7.1
P/BV (x) 1.21 1.23 1.89 2.19 1.97 1.82
FCF Yield (%) 3.6 8.4 9.9 12.0 11.7 13.3
Dividend Yield (%) 2.1 3.0 4.8 6.1 7.7 9.9
EV/Sales (x) 2.2 1.5 1.5 1.8 1.7 1.5
EV/EBIT (x) 10.3 6.9 5.4 5.1 4.6 4.0
Market cap (m) HKDm 240,608
USDm 30,663 Income Statement (CNYm)
Sales revenue 50,976 55,932 75,311 99,876 103,790 108,914
Anhui Conch Cement Company Limited is China's largest EBITDA 15,146 16,878 26,023 40,847 42,650 45,933
cement producer, with annual output of 300m tonnes. The Depreciation 4,459 4,753 4,831 4,647 4,820 5,342
company's major products are 32.5- and 42.5-grade Portland Amortisation 0 0 0 0 0 0
cement and clinker. It sells its products both domestically EBIT 10,686 12,125 21,191 36,200 37,830 40,591
and internationally. Anhui Conch Cement Company Limited Net interest income(expense) -563 -329 -36 754 1,474 2,240
produces and sells ordinary portland cement, portland blast- Associates/affiliates -38 -97 120 131 144 157
furnace slag cement, compound cement and commercial Exceptionals/extraordinaries 0 0 0 0 0 0
clinker. The company sells its products under the Conch, Hailuo Other pre-tax income/(expense) 0 0 0 0 0 0
and Huangshan trademarks. Profit before tax 10,086 11,699 21,275 37,085 39,447 42,988
60 Minorities 106 423 576 992 1,055 1,150
Net profit 7,539 8,574 15,899 27,378 29,122 31,736
40
30 DB adjustments (including dilution) 0 0 0 0 0 0
DB Net profit 7,539 8,574 15,899 27,378 29,122 31,736
20
10
Anhui Conch Cement HANG SENG INDEX (Rebased) Cash flow from operations 8,944 12,191 16,668 34,431 32,984 35,495
Net Capex -5,075 -4,865 -3,577 -7,419 -6,619 -5,619
50
Dividends paid -3,918 -2,559 -2,782 -13,689 -17,473 -22,215
40 Net inc/(dec) in borrowings 2,900 5,705 1,827 -3,121 -2,617 -795
Other investing/financing cash flows -11,057 -8,978 -7,475 -3,299 1,226 1,673
30
Net cash flow -8,206 1,494 4,661 6,903 7,501 8,539
20 Change in working capital -172 -1,275 -3,072 2,920 101 72
10
Other assets 12,652 14,233 21,528 24,997 25,671 26,614
40 25 Total assets 105,781 109,514 122,143 140,092 150,955 161,845
15 16 17 18E 19E 20E Minorities 3,397 3,669 2,539 3,532 4,587 5,737
Sales growth (LHS) ROE (RHS) Net debt 4,713 395 -10,781 -25,479 -36,341 -46,650

60 800
40 600 Sales growth (%) -16.1 9.7 34.6 32.6 3.9 4.9
DB EPS growth (%) -31.3 13.7 85.4 72.2 6.4 9.0
20 400
EBITDA Margin (%) 29.7 30.2 34.6 40.9 41.1 42.2
0 200 EBIT Margin (%) 21.0 21.7 28.1 36.2 36.4 37.3
-20 0 Payout ratio (%) 30.2 30.9 40.0 50.0 60.0 70.0
-40 -200 ROE (%) 11.1 11.7 19.2 28.5 26.8 26.6
15 16 17 18E 19E 20E Capex/sales (%) 10.1 8.9 4.9 7.4 6.4 5.2
Net debt/equity (%) 6.4 0.5 -11.8 -24.0 -30.5 -36.0
Johnson Wan Net interest cover (x) 19.0 36.9 581.6 nm nm nm

26 July 2018
China Cement
Asia DB EPS (HKD) 0.31 0.25 0.55 1.21 1.32 1.39
Reported EPS (HKD) 0.16 0.20 0.55 1.19 1.31 1.38
Hong Kong DPS (HKD) 0.08 0.09 0.27 0.66 0.79 0.90
BVPS (HKD) 4.1 4.0 4.6 5.5 6.0 6.5
Average market cap (HKDm) 26,577 17,578 28,548 61,799 61,799 61,799
CR Cement Enterprise value (HKDm) 36,705 25,714 33,396 59,715 56,303 51,865
Valuation Metrics
P/E (DB) (x) 13.2 10.6 7.9 7.3 6.7 6.3
Buy P/E (Reported) (x) 26.2 13.3 7.9 7.4 6.8 6.4
P/BV (x) 0.59 0.76 1.11 1.62 1.48 1.36
FCF Yield (%) 8.5 13.2 19.1 11.0 13.4 16.3
Dividend Yield (%) 2.0 3.3 6.2 7.4 8.9 10.2
EV/Sales (x) 1.4 1.0 1.1 1.5 1.4 1.2
EV/EBIT (x) 13.2 7.5 6.3 5.2 4.6 4.0
USDm 7,875.5 Income Statement (HKDm)
Sales revenue 26,779 25,647 29,958 38,769 40,491 42,055
China Resources Cement Holdings Limited, through its EBITDA 4,744 5,317 7,263 13,470 14,373 14,932
subsidiaries, produces, distributes and sells cement, clinker and Depreciation 1,967 1,902 1,936 2,047 2,079 2,059
concrete. Amortisation 0 0 0 0 0 0
EBIT 2,777 3,415 5,327 11,422 12,294 12,873
Net interest income(expense) -504 -650 -570 -400 -307 -199
Associates/affiliates -244 -50 99 306 310 314
Other pre-tax income/(expense) -1,045 -557 28 -150 -100 -100
Profit before tax 984 2,158 4,884 11,179 12,196 12,887
Price Performance Income tax expense 48 897 1,291 2,907 3,110 3,286
12.5 Minorities -78 -64 -24 -56 -61 -64
Net profit 1,015 1,326 3,617 8,328 9,147 9,666
7.5
5 DB adjustments (including dilution) 994 326 -20 111 75 75
DB Net profit 2,009 1,651 3,596 8,439 9,222 9,740
2.5
0
Jan '17 Jul '17 Jan '18 Jul '18 Cash Flow (HKDm)
CR Cement HANG SENG INDEX (Rebased) Cash flow from operations 4,834 4,112 6,613 9,542 10,734 11,208
Net Capex -2,586 -1,789 -1,157 -2,760 -2,423 -1,136
40
Equity raised/(bought back) 0 0 0 4,181 0 0
Dividends paid -1,045 -229 -1,241 -4,581 -5,488 -6,283
30 Net inc/(dec) in borrowings -1,193 -639 -1,489 -2,559 -1,495 -1,495
Other investing/financing cash flows -2,219 -50 -793 188 219 1,795
20
Net cash flow -2,210 1,406 1,933 4,011 1,546 4,089
10 Change in working capital 1,573 -170 849 -283 97 131
0
15 16 17 18E 19E 20E Balance Sheet (HKDm)
Other assets 6,104 6,387 7,033 8,232 8,507 8,767
20 30 Total assets 54,217 52,157 56,527 62,756 65,231 67,446
15 16 17 18E 19E 20E Minorities 429 245 173 118 57 -8
Sales growth (LHS) ROE (RHS) Net debt 16,970 14,700 11,767 5,196 2,155 -1,905

75 80
Sales growth (%) -18.0 -4.2 16.8 29.4 4.4 3.9
50 60 DB EPS growth (%) -54.1 -17.8 117.8 119.5 9.3 5.6
25 40 EBITDA Margin (%) 17.7 20.7 24.2 34.7 35.5 35.5
EBIT Margin (%) 10.4 13.3 17.8 29.5 30.4 30.6
0 20 Payout ratio (%) 51.5 44.3 48.8 55.0 60.0 65.0
-25 0 ROE (%) 3.7 5.0 12.8 24.3 22.8 22.2
15 16 17 18E 19E 20E Capex/sales (%) 9.7 7.1 3.9 7.1 6.0 2.7
Net debt/equity (%) 62.9 56.0 38.6 13.5 5.1 -4.2

26 July 2018
China Cement
Asia DB EPS (CNY) 0.19 0.25 0.27 0.50 0.70 0.70
Reported EPS (CNY) 0.19 0.25 0.27 0.50 0.70 0.70
China DPS (CNY) 0.02 0.05 0.06 0.10 0.15 0.15
BVPS (CNY) 3.6 4.1 4.8 5.2 5.8 6.4
BBMG Enterprise value (CNYm) 83,913 88,268 110,730 76,173 76,998 78,066
Valuation Metrics
P/E (DB) (x) 28.6 12.4 12.3 5.1 3.7 3.7
Buy P/E (Reported) (x) 28.6 12.4 12.3 5.1 3.7 3.7
P/BV (x) 1.20 0.55 0.64 0.49 0.44 0.41
FCF Yield (%) nm 7.8 nm 128.1 5.7 6.3
Dividend Yield (%) 0.4 1.7 1.7 4.1 5.6 5.6
EV/Sales (x) 2.1 1.8 1.7 1.0 0.9 0.8
EV/EBIT (x) 21.3 17.1 16.9 7.9 6.3 6.3
USDm 5,538.9 Income Statement (CNYm)
Sales revenue 40,925 47,739 63,678 75,201 85,489 95,026
BBMG has operations in manufacturing and sales of cement EBITDA 5,438 7,348 10,806 13,873 16,830 17,205
and modern building materials. The company also operates in Depreciation 1,505 2,177 4,262 4,221 4,556 4,884
property development, property investment and provision of Amortisation 0 0 0 0 0 0
property management services in China. EBIT 3,934 5,171 6,544 9,652 12,274 12,321
Net interest income(expense) -1,336 -1,604 -2,676 -1,913 -1,512 -1,566
Associates/affiliates -18 109 189 223 253 282
Price Performance Income tax expense 1,232 986 1,107 2,172 3,005 3,011
5 Minorities -66 4 114 405 561 562
4 Net profit 2,017 2,687 2,837 5,385 7,449 7,464
3
DB Net profit 2,017 2,687 2,837 5,385 7,449 7,464
2
BBMG HANG SENG INDEX (Rebased) Cash flow from operations -653 3,504 -11,855 45,792 11,965 12,127
Net Capex -1,166 -902 -10,400 -10,400 -10,400 -10,400
Margin Trends Free cash flow -1,819 2,602 -22,255 35,392 1,565 1,727
25
Dividends paid -2,792 -3,037 -558 -590 -1,119 -1,548
20 Net inc/(dec) in borrowings 33,696 52,478 11,170 -27,791 3,652 4,859
Other investing/financing cash flows -24,351 -45,145 6,446 -1,913 -1,512 -1,566
15
Net cash flow 4,734 6,897 -5,197 5,098 2,586 3,472
10 Change in working capital -5,295 -2,299 -25,125 34,410 -1,971 -1,351
5
40 17.5 Associates/investments 15,760 21,285 21,694 22,396 23,198 24,079
Other assets 71,450 92,256 127,184 95,643 104,954 115,804
30 15
Total assets 130,747 208,397 232,207 212,888 231,605 252,445
20 12.5 Interest bearing debt 45,602 81,292 92,462 64,671 68,323 73,182
0 7.5 Total liabilities 88,565 145,488 162,290 137,770 149,595 163,959
15 16 17 18E 19E 20E Minorities 4,099 18,709 18,755 19,160 19,721 20,283

200 10
Sales growth (%) -0.8 16.6 33.4 18.1 13.7 11.2
150 8 DB EPS growth (%) -25.4 33.2 5.6 89.8 38.3 0.2
100 6 EBITDA Margin (%) 13.3 15.4 17.0 18.4 19.7 18.1
EBIT Margin (%) 9.6 10.8 10.3 12.8 14.4 13.0
50 4 Payout ratio (%) 11.5 20.8 20.8 20.8 20.8 20.8
0 2 ROE (%) 5.8 6.5 5.9 10.1 12.6 11.4
15 16 17 18E 19E 20E Capex/sales (%) 4.5 7.0 16.3 13.8 12.2 10.9
Net debt/equity (%) 64.6 84.7 106.6 55.5 52.1 49.9

26 July 2018
China Cement
Model updated: 01 May 2018 Fiscal year end 31-Dec 2014 2015 2016 2017E 2018E 2019E
Asia DB EPS (CNY) 1.10 0.19 0.20 0.60 1.11 1.39
Reported EPS (CNY) 1.10 0.19 0.20 0.60 1.11 1.39
China DPS (CNY) 0.17 0.04 0.04 0.16 0.29 0.39
BVPS (CNY) 7.5 7.8 7.8 8.4 9.4 10.5
CNBM Enterprise value (CNYm) 205,863 201,686 201,057 221,385 220,573 223,654
Valuation Metrics
P/E (DB) (x) 5.4 27.8 15.9 12.1 6.5 5.2
Buy P/E (Reported) (x) 5.4 27.8 15.9 12.1 6.5 5.2
P/BV (x) 0.80 0.39 0.42 0.86 0.77 0.69
FCF Yield (%) nm nm 27.5 9.0 18.6 13.3
Dividend Yield (%) 2.8 0.7 1.4 2.2 4.0 5.4
EV/Sales (x) 1.7 2.0 2.0 1.7 1.6 1.6
EV/EBIT (x) 9.6 14.1 16.0 12.1 8.9 8.0
Sales revenue 122,011 100,292 101,547 127,626 133,882 138,480
China National Building Material is a leading PRC building EBITDA 28,252 21,759 20,158 25,972 32,889 36,441
materials company with significant operations in the cement, Depreciation 6,828 7,452 7,567 7,725 8,067 8,437
lightweight building materials, glass fiber and FRP products and Amortisation 0 0 0 0 0 0
engineering services business segment. EBIT 21,424 14,306 12,591 18,247 24,822 28,004
Associates/affiliates 985 331 763 1,052 1,262 1,325
12.5 Minorities 2,707 1,448 1,237 2,463 4,322 5,262
Other post-tax income/(expense) -45 -326 -527 -653 -800 -800
10
Net profit 5,920 1,019 1,058 3,225 6,005 7,484
7.5
5 DB Net profit 5,920 1,019 1,058 3,225 6,005 7,484
2.5
CNBM HANG SENG INDEX (Rebased) Cash flow from operations 2,942 8,303 15,389 22,270 21,687 19,586
Net Capex -10,278 -9,595 -10,778 -18,762 -14,427 -14,411
Margin Trends Free cash flow -7,336 -1,292 4,612 3,508 7,259 5,175
30
Dividends paid -1,985 -2,280 -1,022 -905 -1,561 -2,096
25 Net inc/(dec) in borrowings 13,321 3,909 13,087 -8,866 2,731 -2,462
Other investing/financing cash flows -2,689 10,536 -6,718 -3,569 -2,053 -2,344
20
Net cash flow 1,311 10,873 9,958 -9,831 6,376 -1,727
15 Change in working capital -10,140 -12,004 -5,139 -7,380 2,060 -1,410
10
Other assets 88,726 97,643 103,754 105,759 106,892 108,205
40 15 Total assets 316,482 329,788 340,754 347,194 364,858 374,513
14 15 16 17E 18E 19E Minorities 26,404 31,563 33,718 40,138 44,460 49,723

400 3
Sales growth (%) 3.7 -17.8 1.3 25.7 4.9 3.4
300 2.5 DB EPS growth (%) 2.7 -82.8 3.8 204.8 86.2 24.6
200 2 EBITDA Margin (%) 23.2 21.7 19.9 20.3 24.6 26.3
EBIT Margin (%) 17.6 14.3 12.4 14.3 18.5 20.2
100 1.5 Payout ratio (%) 15.0 19.6 21.9 26.2 26.0 28.0
0 1 ROE (%) 15.6 2.5 2.5 7.4 12.5 14.0
14 15 16 17E 18E 19E Capex/sales (%) 8.5 9.9 11.3 14.7 10.8 10.4
Net debt/equity (%) 240.4 215.9 221.1 186.1 163.1 144.6

26 July 2018
China Cement
Asia DB EPS (TWD) 1.31 1.18 1.71 3.77 3.83 4.05
Reported EPS (TWD) 1.55 1.26 1.74 3.79 3.86 4.08
Taiwan DPS (TWD) 1.10 0.90 1.20 2.61 2.66 2.81
BVPS (TWD) 40.4 36.5 37.9 40.3 41.5 42.8
Average market cap (TWDm) 118,715 92,511 93,284 122,264 122,264 122,264
Asia Cement Enterprise value (TWDm) 127,754 100,883 100,362 120,448 113,081 105,901
Reuters: 1102.TW Bloomberg: 1102 TT
Valuation Metrics
P/E (DB) (x) 27.0 23.3 16.2 10.5 10.4 9.8
Buy P/E (Reported) (x) 22.8 21.9 15.9 10.5 10.3 9.7
P/BV (x) 0.68 0.72 0.74 0.98 0.96 0.93
Price (24 Jul 18) TWD 39.70
FCF Yield (%) 8.5 12.5 7.6 6.5 8.5 8.4
Dividend Yield (%) 3.1 3.3 4.3 6.6 6.7 7.1
Target Price TWD 56.51
EV/Sales (x) 1.9 1.7 1.5 1.5 1.4 1.3
52 Week range TWD 26.10 - 39.70 EV/EBITDA (x) 13.4 8.7 8.0 6.1 5.8 5.3
EV/EBIT (x) 31.6 16.2 13.5 8.0 7.5 6.7
Market cap (m) TWDm 122,264
USDm 3,979.3 Income Statement (TWDm)
Sales revenue 66,287 60,946 64,899 79,715 80,607 82,811
Established by the Far Eastern Group in 1957, Asia Cement EBITDA 9,563 11,568 12,512 19,715 19,541 19,965
is the second-largest cement manufacturer in Taiwan. With Depreciation 5,523 5,335 5,076 4,719 4,391 4,090
its expansion to China in mid-1990's, Asia Cement, together Amortisation 0 0 0 0 0 0
with its 68%-owned subsidiary ACC China (0743 HK), currently EBIT 4,040 6,233 7,437 14,997 15,150 15,875
owns cement production facilities in Taiwan (5.78mtpa), Net interest income(expense) -1,251 -1,431 -1,592 -1,633 -1,689 -1,551
Sichuan (4mtpa), Jiangxi (6mtpa), and Hubei (2mtpa). As Associates/affiliates 0 0 0 0 0 0
a member and a holding company under the Far Eastern Exceptionals/extraordinaries 0 0 0 0 0 0
Group, Asia Cement also owns stakes in key group companies Other pre-tax income/(expense) 4,025 1,674 2,655 6,693 6,951 7,243
including Far Eastern New Century (23.8%) and U-Ming Marine Profit before tax 6,814 6,477 8,499 20,056 20,412 21,567
Price Performance
(38.7%). Income tax expense 1,880 1,793 1,834 5,553 5,652 5,972
45 Minorities 74 738 1,197 2,603 2,650 2,799
35 Net profit 4,860 3,946 5,469 11,899 12,111 12,796
30 DB adjustments (including dilution) -752 -235 -104 -73 -73 -73
25 DB Net profit 4,108 3,711 5,365 11,826 12,038 12,722
20
Jan '17 Jul '17 Jan '18 Jul '18
Cash Flow (TWDm)
Asia Cement
Taiwan Stock Exchange (TWSE) (Rebased) Cash flow from operations 13,592 12,817 8,139 9,369 12,044 11,862
Net Capex -3,453 -1,223 -1,020 -696 -682 -682
30
Dividends paid -7,395 -3,698 -3,025 -3,767 -8,197 -8,342
25 Net inc/(dec) in borrowings -4,911 -14,100 2,832 -2,608 -4,576 1,551
20 Other investing/financing cash flows 450 2,628 -6,636 0 0 0
15 Net cash flow -1,716 -3,574 289 2,298 -1,410 4,389
10 Change in working capital 3,907 1,628 -3,818 -3,261 -257 -682
5
15 16 17 18E 19E 20E Balance Sheet (TWDm)
Other assets 92,584 86,447 96,479 100,460 100,809 101,674
20 10
Total assets 270,077 238,471 247,064 255,912 257,993 266,980
15 16 17 18E 19E 20E Minorities 18,955 18,000 18,361 20,964 23,614 26,413

80 12.5
Sales growth (%) -14.7 -8.1 6.5 22.8 1.1 2.7
60 10 DB EPS growth (%) -45.4 -9.6 44.6 120.4 1.8 5.7
40 7.5 EBITDA Margin (%) 14.4 19.0 19.3 24.7 24.2 24.1
EBIT Margin (%) 6.1 10.2 11.5 18.8 18.8 19.2
20 5 Payout ratio (%) 76.1 76.7 73.8 73.8 73.8 73.8
0 2.5 ROE (%) 3.5 3.1 4.4 9.0 8.8 9.0
15 16 17 18E 19E 20E Capex/sales (%) 5.2 2.0 1.6 0.9 0.8 0.8
Net debt/equity (%) 54.2 50.6 50.3 43.7 40.0 36.6

26 July 2018
China Cement
Asia DB EPS (CNY) 0.19 0.25 0.27 0.50 0.70 0.70
Reported EPS (CNY) 0.19 0.25 0.27 0.50 0.70 0.70
China DPS (CNY) 0.02 0.05 0.06 0.10 0.15 0.15
BVPS (CNY) 3.6 4.1 4.8 5.2 5.8 6.4
BBMG Enterprise value (CNYm) 61,348 90,504 129,505 68,898 69,723 70,791
Reuters: 601992.SS Bloomberg: 601992 CH
Valuation Metrics
P/E (DB) (x) 26.6 16.7 22.8 7.5 5.4 5.4
Hold P/E (Reported) (x) 26.6 16.7 22.8 7.5 5.4 5.4
P/BV (x) 1.31 1.08 1.13 0.73 0.65 0.59
Price (24 Jul 18) CNY 3.80
FCF Yield (%) nm 5.8 nm 87.2 3.9 4.3
Dividend Yield (%) 0.4 1.2 0.9 2.8 3.8 3.8
Target Price CNY 3.72
EV/Sales (x) 1.5 1.9 2.0 0.9 0.8 0.7
52 Week range CNY 3.09 - 7.18 EV/EBITDA (x) 11.3 12.3 12.0 5.0 4.1 4.1
EV/EBIT (x) 15.6 17.5 19.8 7.1 5.7 5.7
Market cap (m) CNYm 30,465
Sales revenue 40,925 47,739 63,678 75,201 85,489 95,026
BBMG has operations in manufacturing and sales of cement EBITDA 5,438 7,348 10,806 13,873 16,830 17,205
and modern building materials. The company also operates in Depreciation 1,505 2,177 4,262 4,221 4,556 4,884
property development, property investment and provision of Amortisation 0 0 0 0 0 0
property management services in China. EBIT 3,934 5,171 6,544 9,652 12,274 12,321
Associates/affiliates -18 109 189 223 253 282
Price Performance Income tax expense 1,232 986 1,107 2,172 3,005 3,011
10 Minorities -66 4 114 405 561 562
8
Net profit 2,017 2,687 2,837 5,385 7,449 7,464
6
4 DB Net profit 2,017 2,687 2,837 5,385 7,449 7,464
2
BBMG HANG SENG INDEX (Rebased) Cash flow from operations -653 3,504 -11,855 45,792 11,965 12,127
Net Capex -1,166 -902 -10,400 -10,400 -10,400 -10,400
Margin Trends Free cash flow -1,819 2,602 -22,255 35,392 1,565 1,727
25
Dividends paid -2,792 -3,037 -558 -590 -1,119 -1,548
20 Net inc/(dec) in borrowings 33,696 52,478 11,170 -27,791 3,652 4,859
Other investing/financing cash flows -24,351 -45,145 6,446 -1,913 -1,512 -1,566
15
Net cash flow 4,734 6,897 -5,197 5,098 2,586 3,472
10 Change in working capital -5,295 -2,299 -25,125 34,410 -1,971 -1,351
5
40 17.5 Associates/investments 15,760 21,285 21,694 22,396 23,198 24,079
Other assets 71,450 92,256 127,184 95,643 104,954 115,804
30 15
Total assets 130,747 208,397 232,207 212,888 231,605 252,445
20 12.5 Interest bearing debt 45,602 81,292 92,462 64,671 68,323 73,182
0 7.5 Total liabilities 88,565 145,488 162,290 137,770 149,595 163,959
15 16 17 18E 19E 20E Minorities 4,099 18,709 18,755 19,160 19,721 20,283

200 10
Sales growth (%) -0.8 16.6 33.4 18.1 13.7 11.2
150 8 DB EPS growth (%) -25.4 33.2 5.6 89.8 38.3 0.2
100 6 EBITDA Margin (%) 13.3 15.4 17.0 18.4 19.7 18.1
EBIT Margin (%) 9.6 10.8 10.3 12.8 14.4 13.0
50 4 Payout ratio (%) 11.5 20.8 20.8 20.8 20.8 20.8
0 2 ROE (%) 5.8 6.5 5.9 10.1 12.6 11.4
15 16 17 18E 19E 20E Capex/sales (%) 4.5 7.0 16.3 13.8 12.2 10.9
Net debt/equity (%) 64.6 84.7 106.6 55.5 52.1 49.9

26 July 2018
China Cement
Appendix 1
Important Disclosures
*Other information available upon request
*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from
local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject
companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than
the primary subject of this research, please see the most recently published company report or visit our global disclosure
look-up page on our website at https://research.db.com/Research/Disclosures/CompanySearch. Aside from within this
report, important risk and conflict disclosures can also be found at https://research.db.com/Research/Topics/Equities?
topicId=RB0002. Investors are strongly encouraged to review this information before investing.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject
issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any
compensation for providing a specific recommendation or view in this report. Johnson Wan
Equity Rating Key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder
return (TSR = percentage change in share price from current
price to projected target price plus pro-jected dividend yield ) ,
we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder
return, we recommend that investors sell the stock.
Hold: We take a neutral view on the stock 12-months out and,
based on this time horizon, do not recommend either a Buy
or Sell.
Newly issued research recommendations and target prices
supersede previously published research.

26 July 2018
China Cement
Additional Information
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26 July 2018
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26 July 2018
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China Cement: Breezing Into 2H - When Tight Supply Meets Strong Demand

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China Cement: Breezing Into 2H - When Tight Supply Meets Strong Demand

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China Cement

Asia Industry Date

Taiwan Forecast Change

Breezing into 2H - when tight supply

Deutsche Bank AG/Hong Kong

pollution is worst, and demand is greatest, we expect more unplanned production

Very strong demand from infrastructure projects

Property sell-through rate remaining high as restocking continues

1H18 earnings preview for cement - earnings to increase by 133% yoy

Page 2 Deutsche Bank AG/Hong Kong

Source: Deutsche Bank estimates, company data

Deutsche Bank AG/Hong Kong Page 3

Figure 3: Summary of companies

Source: Deutsche Bank estimates, company data

Page 4 Deutsche Bank AG/Hong Kong

Figure 6: 1H18 operating forecasts

* CRC operating data in HKD

Source: Deutsche Bank estimates, Company data

Deutsche Bank AG/Hong Kong Page 5

TP changes and earnings

Source: Deutsche Bank estimates, Bloomberg Finance LP

1H18 results calendar

Figure 8: 1H18 earnings calendar

Source: Company data, Deutsche Bank

Page 6 Deutsche Bank AG/Hong Kong

Source: Deutsche Bank

Key visits and meetings during the trip

■ Chongqing Cement Association

■ West China Cement

Deutsche Bank AG/Hong Kong Page 7

Lessons learnt from the

Figure 10: Mandatory winter production halts become longer

Source: Provincial Environmental Protection Bureau, Digital Cement, Deutsche Bank

Page 8 Deutsche Bank AG/Hong Kong

2013 2014 2015 2016 2017 2018

Deutsche Bank AG/Hong Kong Page 9

2013 2014 2015 2016 2017 2018

2013 2014 2015 2016 2017 2018

Page 10 Deutsche Bank AG/Hong Kong

2013 2014 2015 2016 2017 2018

2013 2014 2015 2016 2017 2018

Deutsche Bank AG/Hong Kong Page 11

2013 2014 2015 2016 2017 2018

Demand: 1H18’s volume increased by 4% yoy in Yunnan, and cement companies

Page 12 Deutsche Bank AG/Hong Kong

Supply: Unlike in Yunnan, additional capacity from cross-province capacity swap

Demand: Cement demand in Chongqing is around 67mt a year. Property

Supply: Total capacity in Chongqing is c.92mt, and there is an overcapacity

Deutsche Bank AG/Hong Kong Page 13

Demand: 60-65% of cement demand comes from municipal projects, followed

What did infrastructure PPP project / fund management

Page 14 Deutsche Bank AG/Hong Kong

Source: Deutsche Bank Source: Deutsche Bank

All FAI Infrastructure Property Manufacturing

Source: NBS, Deutsche Bank Source: Ministry of Finance, Deutsche Bank

Deutsche Bank AG/Hong Kong Page 15

Others, 449 Xinjiang, 149

Jiangxi, 65 Inner Yunnan, 88

Page 16 Deutsche Bank AG/Hong Kong

projects with no or low operational returns; 3) projects that are inappropriately

What did the property experts say? - "Housing prices can

Deutsche Bank AG/Hong Kong Page 17

1,200 30% 40%