20181H results in line with preannouncement
BBMG’s 1H18 net profit attributable to shareholders rose 30.5% YoYto Rmb2,410mn or Rmb0.23/sh. 2Q18 net profit attributable toshareholders grew 86.6% YoY to Rmb2,623mn, in line with ourexpectation but higher than the market’s.
　　Comments: the firm’s sales volume of cement & clinker -4.8% YoY to43.6mnt in 1H but GP/t sharply rose. In 1H18, GP/t of its cement &clinker +Rmb34/t to Rmb106/t and net profit per tonne + 97.6% YoYto Rmb33.6/t. The firm’s expense ratio fell 1.6ppt YoY to 15.9% in1H18. Its net operating cash flow sharply rose by Rmb3.53bn YoY toRmb129mn in 2Q18. Asset impairment losses fell by Rmb133mn YoYin 1H18 because the firm did not make loss provisions for bad debt.
　　Trends to watch
　　Cement prices in Beijing, Tianjin and Hebei may beat expectations inthe peak demand season. BBMG recently announced a clinker pricehike in Tangshan by Rmb15/t, as the peak demand season is coming.We expect infrastructure investment growth to improve in 2H18 andcement prices to further rise in the peak demand season.
　　Booked GFA of projects sold to rise HoH in 2H18. The firm expects itsbooked revenue from property projects sold to grow 33% YoY toRmb21.4bn, booked GFA of property projects sold to reach ~0.92mnsqm and the gross margin to be 31% in 2018. Therefore, we expectbooked GFA of its property projects sold to rise on a HoH basis to~0.49mn sqm in 2H18.
　　Earnings forecast
　　As we revise up our cement price forecast, we raise 2018e/19e EPSby 17.7%/11.7% from Rmb0.39/Rmb0.47 to Rmb0.46/Rmb0.52.
　　Valuation and recommendation
　　BBMG-A is trading at 0.7x/0.6x 2018e/19e P/B, and BBMG-H at0.5x/0.4x. As market expectations for cement demand have beenrevised down （valuations are falling）， we maintain BUY, but cut ourTP by 18% to Rmb4.7 for BBMG-A （0.9x/0.8x 2018e/19e P/B, 35%upside） and by 17% to HK$4.0 for BBMG-H （0.6x/0.6x 2018e/19eP/B, 40% upside）。
　　Risks: Worse-than-expected impact from low-price cement.