1H19 results in line with preannouncement
BBMG’s 1H19 revenue and attributable net profit rose 26.14% and26.36% YoY to Rmb44.6bn and Rmb3.05bn, in line with its resultspreannouncement. 2Q19 attributable net profit stayed largely flatYoY at Rmb2.62bn.
Cement volume and price rising; aggregate and environmentalservice business rapidly growing. Sales volume of cement and clinkerrose 14.5% YoY to 45.28mnt in 1H19, and 5.6% YoY to 31.13mnt in2Q19. ASP of cement and clinker rose Rmb29/t in 1H19 （+Rmb28/t in2Q19）， and gross profit rose Rmb14/t to Rmb120/t （+Rmb12/t in2Q19） despite higher environmental cost. 1H19 revenue of aggregateand solid-waste treatment business rose 29.3% and 35.3% YoY toRmb400mn and Rmb660mn with gross margin at 55% and 51%.
Earnings of real estate and other business stable. Real estatebusiness’ 1H19 revenue and gross profit rose 12% and 31% YoY toRmb11.15bn and Rmb4.17bn with gross margin up 5.4ppt YoY to37.4%. Gross profit from new building materials & trade andcommercial investment increased 11% and 33% YoY to Rmb640mnand Rmb1.47bn, with gross margin at 5% and 66%.
Trends to watch
Fundamentals of cement business to remain strong. Despite a slackseason, cement price in Beijing, Tianjin and Hebei increased and ASPof high-grade cement has reached Rmb487/t （+Rmb50/t vs. 3Q18）。
We expect cement business to enjoy rising sales volume and prices in2H19, and its earnings to grow rapidly YoY. In the next two years, weexpect cement sales prices and earnings to stabilize at high levels,given the ample large infrastructure projects in Beijing, Tianjin andHebei, and limited new production capacity for clinker.
Financials and valuation
Given lower assumptions on expense ratio and minority interest, weraise 2019-2020 EPS forecast 39.9% and 44.1% to Rmb0.51 andRmb0.52. BBMG A-share is trading at 0.6x and 0.5x 2019-2020e P/B,and H-share at 0.3x and 0.3x. Maintain OUTPERFORM and TP atRmb5.05 for A-share （0.9x and 0.8x 2019-2020e P/B with 50% upside）and HK$3.12 for H-share （0.5x and 0.4x 2019-2020e P/B with 41%upside）。 Risks: Disappointing demand and/or loss reduction forconcrete segment.