BBMG-Jidong new asset restructuring proposed
The structure of the M&A between BBMG-Jidong has changed from assetinjection of BBMG's assets into Jidong to an establishment of a newly formedJV to avoid the so-called “double listing” issue. BBMG-Jidong has proposed anew solution whereby BBMG will inject their 22 cement plants into a new JVwith Jidong owning 53% and the rest of the BBMG cement assets will be undercustodian of the new JV. As such, BBMG will legally be separated from cementoperation and will not constitute competition within same industry with Jidong.
The first step would be injecting 11 cement plants into the new JV with the restto be completed within 3 years. BBMG-Jidong reiterated that daily operation ofcement business has been combined since the equity restructuring in 2016 andthe new solution would yield similar effect to earnings while all assets will still beultimately consolidated to BBMG balance sheets.
Cement demand to rebound in 2018; M&A still a priority
BBMG expects the cement demand to stay flat to up in 2018 as cement demandin Bohai rim was artificially suppressed due to the 19th CPC meeting and tighterenvironmental controls which halted all construction activities in Tianjin half amonth before the mandatory winter production halt on Nov 15. In addition, thereare also anti-dumping measures adopted post BBMG-Jidong merger. In fact,BBMG saw decent growth of cement volume at c.5% yoy in the 2H17 and expectFY17 volume to fall c.10% yoy. Meanwhile, BBMG is also committed to furtherconsolidating the Bohai rim market and highlighted that their actual market shareby sales volume was only at 45% despite controlling 56% of the clinker capacity.
While they have budgeted c.RMB6bn for M&A in the region, the current upcyclehas discouraged asset owner to dispose their stakes but BBMG will continue tolook for the right opportunities.
Property development stronger than expected
BBMG property sales for 11M17 has reached RMB25bn, which is already higherthan its annual target of RMB23bn. In terms of GFA sold, it recorded 1.4m sqm, up22% yoy. GPM for the 9M17 was at 29%. Current land bank stand at 8m sqm GFAwith another 9m sqm land area of industrial land available for conversion. Besides,BBMG has phased out Qianjin cement production line in Beijing in early 2017,adding another valuable piece of land to its potential industrial land conversionproject.