Cement prices in north China have remained solid YTD, thanks to strong volumegrowth from a low base last year.
Stabilizing market sentiment on the China property sector should also be positive forBBMG.
The PBR is 0.37x, the low end of the historical range, which may suggest furtherdownside risk is limited.
Maintain BUY. Our earnings forecast remains unchanged with a sum-of-the-partstarget price of HK$3.41 （~8.4x 2019E PER）。
Cement prices in north China performed well
The market prices of cement in north China have kept going upgradually this year, driven by strong volume growth from a low base last year. Asproduction was weak in Q1 2018, cement production volume grew 26.1% in 4M2019 to40.5m tonnes, according to Digital Cement data. Although the low base effect was muchsmaller in April 2019, cement production volume still grew 8.9% in the month, muchbetter than the national average of 3.4% growth. According to BBMG management, morenew construction projects started in Q2 2019, which should help support full-yeardemand in north China.
Market sentiment on the China property sector stabilizing
As more than half of BBMG’s profit is related to the China property sector, its share priceis also affected by market sentiment on this sector, not just cement prices in north China.
After the correction in April and May, the share prices of leadingChina property players, such as COLI （0688.HK）， CR Land （1109.HK）， Longfor（0960.HK） and Shimao Property （0813.HK）， rebounded in the past two weeks. Thisshould help limit the downside risk of BBMG.
PBR back to the low end of the historical rangeBBMG is trading at 0.37x 2019E PBR and 6x 2019E PER. The current PBR is very closeto the low end of the historical range 。 On the back of solid cement prices innorth China and the stabilization of market sentiment on the China property sector, webelieve the current valuation suggests further share price downside should be small.
Reiterate BUY; more room to rebound as a laggardDespite its strong share price performance in Q1 2019, BBMG’s share price has dropped16.67% since April, weaker than that of Conch Cement （-2.6%）， CNBM （+3.39%） and CRCement （-9.5%）。 We believe the underperformance of BBMG is partly because of its highexposure to China property business, which is a high beta sector. But stabilizing marketsentiment on this sector should help BBMG’s share price catch up, in our view. Wereiterate our BUY rating with a sum-of-the parts target price of HK$3.41 （~8.4x 2019EPER）。