The industry association in Hebei is coordinating a production suspension in certainperiods of July and August due to air pollution control.
Tangshan, one of the key areas of cement production in Hebei, will play a key role inthe production suspension.
We maintain our view that cement prices in north China will be stronger than those ineast and south China in the near term, as these two regions have been affected byrainy weather.
Cement production in north China grew 21.6% YoY in 5M2019, much stronger thanthe national average of 7.1% growth.
Maintain ADD （please see the disclaimer for details of our new rating system）。 Ourearnings forecast remains unchanged with a sum-of-the-parts target price of HK$3.41（~8.4x 2019E PER）。
Proposed production suspension to control air pollutionWe understand that the Hebei Province Building Materials Industry Association is workingwith the authorities to coordinate the off-peak production suspension of cement plants inthe province for air pollution control during the two following periods: （i） from June 25 toJuly 4; and （ii） from August 1 to 10.
Tangshan will play an important role in the production suspensionMany cement plants in Tangshan have already received a notice of productionsuspension, according to our checks. In 5M2019, Tangshan reported cement productionof nearly 10m tonnes, equivalent to ~28% of the production volume in Hebei in thecorresponding period.
Cement prices in north China likely to be better than in otherregions in the near term
cement prices remained firm in north China, while prices ineast and south China have softened recently partly due to rainy weather. With theproposed production suspension in Hebei in July and August, we expect cement prices innorth China to continue to perform better than those in east and south China in the nextone to two months.
Production volume in north China recovered from a low baseCement production volume in north China grew 21.6% YoY in 5M2019 to 63.6m tonnes,thanks to the low base effect in Q1 2018. Although the low base effect became muchsmaller in Q2, cement production volume in north China still grew 15% YoY to 23mtonnes, driven by demand recovery from construction projects. On the other hand,cement production volume in Guangdong and Guangxi dropped 1.2% YoY in Maybecause of unfavourable weather conditions.
Maintain ADD with a target price of HK$3.41BBMG’s share price has rebounded by nearly 9% from the trough level in late May, andwe see further room for the share price to go higher because of favourable news flow（off-peak production suspension） and an undemanding valuation. We reiterate our ADDrating with a sum-of-the parts target price of HK$3.41 （~8.4x 2019E PER）。