Conch Cement 2017 Annual Review: Cement “Moutai”

2017 revenue of 75.31 billion yuan increased by 34.65%, and net profit of mothers reached 15.85 billion yuan with an increase of 85.87 %, the net profit of non-returning mothers increased by 83.28% and EPS was 2.99 yuan. According to the profit distribution plan, a cash dividend of 1.2 yuan per share will be distributed in 2017, and the total annual dividend will be 6.359 billion yuan. The dividend distribution rate will increase from 30% to 40.11%. The performance and dividend ratio are in line with expectations, and the performance is close to the guidance limit. We believe that this is an excellent business performance and gives the market a perfect account:

1) Sales volume increased by 6.6%, significantly leading the industry Conch is actually a growth stock in the cement industry;

National cement production in 2015 was slightly lower by 0.2%, but Conch Cement achieved sales of cement and clinker of 295 million tons, up 6.6% year-on-year. Far more than the industry, the market share continues to increase. We believe that while Conch guarantees the core profit area, it is characterized by a short cement transportation radius, further expanding new areas, and continuously expanding new growth points through mergers and acquisitions and market-based shuffling. From 2011 to 2017, the whole country Total cement production increased by approximately 12% and Conch Cement sales nearly doubled; in fact, Conch is the only growth stock in cement.

In the report period, the company acquired Shaanxi Fenghuang Building Materials, increasing the clinker production capacity by 1.8 million tons, cement production capacity by 2.2 million tons, and aggregate capacity of 2 million tons. Further promote the internationalization strategy. During the reporting period, the second phase of the Indonesian Peacock Port Grinding Station was successfully completed and put into operation. The main project of the Indonesian North Su Conch and the Cambodian Battambang Conch has been completed. It is expected to be put into operation in 2018, and the project construction of Lao Luang Prabang Conch will enter. During the peak construction period, the preliminary work of Volga Conch, Laos Vientiane, Myanmar Mandalay and other projects is progressing in an orderly manner.

And at present, we believe that Conch has the comprehensive advantages of unmatched capital and cost layout in the industry, and has the ability to further integrate domestic and foreign leaders. It is not difficult to forecast 400 million tons of sales in the medium and long term;

In other businesses, aggregates and commercial mixes are developing rapidly. Due to the tightening of mine resources and the re-evaluation of mine conch resources, we judge that aggregates may become a profit growth in the future; /p>

2) The improvement of profitability in the context of the industry is not high, and far exceeds the industry, which means a significant improvement in the landscape and the company’s competitiveness;

We estimate the full year of 2017 Price 247 Yuan / ton, an increase of 50 yuan / ton; 87 yuan gross tons, an increase of 23 yuan / ton; t net 48 yuan / ton, an increase of 20 yuan / ton.

The average price of Q4 ex-factory was about 281 yuan / ton, up by 52,41 yuan / ton year-on-year; the gross profit of 113 yuan / ton, an increase of 35, 35 yuan / ton year-on-year; Net profit of 67 yuan / ton, an increase of 36, 27 yuan / ton, respectively, the net profit from the 2011 historical best value of 87 yuan still has room for further improvement, and compare other peer cement stocks, can be seen in 2011 The overall industry-wide economy is different. Conch’s net profit level is far ahead of the industry in 2017;

3) Cement “Moutai”, cash Bull type company, further gaps with the industry

From September 2017, Conch entered a net cash position. By the end of 2017, Conch’s interest-bearing liabilities (including long-term and short-term loans, long-term bonds and within one year) Expired bonds totaled 13.98 billion yuan, but cash in hand reached 24.66 billion yuan (an increase of about 9 billion yuan), operating net cash flow was 17.36 billion yuan (free cash flow of about 15 billion);

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Total debt ratio Continue to reduce by about 2 percentage points to 24.7%, the financial cost in 2017 is about 200 million yuan, and the estimated financial cost in 2018 is negative; in 2017, the toll and third fee is 23.8 yuan, and in 2018 will further widen the gap with the industry;

Pre- Accounts of 2.14 billion yuan increased by 593 million yuan, which shows that Conch Cement does not buy and pay before delivery, and the actual direct response to the downstream supply and demand is tight; Conch partially through the direct sales channel, 2017 accounts receivable 11.1 billion The increase of 46 yuan, because the company’s income scale has expanded by only 20 billion, direct customers will produce bills (the industry’s inherent model has nothing to do with the company itself), followed by accounting policy changes, in the past can directly endorsement to suppliers directly as bill settlement, The current policy is to remain in the company’s accounts before the actual payment (by a receivables credit account payable, a total of 17 billion).

4) The dividend rate has increased significantly to 40%, and it is natural to expect further in 2018 Enhance

In 2017, the share of Conch’s dividend increased by nearly 10 percentage points to 40.1%, and we noticed that the capital expenditures for 2014-2017 were 92.8, 87, 71, and 6.5 billion, respectively. In 2018, the company’s capital starts to be 6.8 billion, which means that capital expenditure in 2018 is likely to be further reduced than 2017. Net cash-state companies and abundant cash in hand plus 2018 billion free cash flow in 2018. It can be reasonably inferred that 40% of the dividend rate has a significant room for improvement;

5) “Buffett” in the cement industry

Investigation in the Conch secondary market in 2017 The revenue was 1.86 billion yuan, and all of them were cement stocks. The Jiandong Cement and Qingsong Jianhua realized the accurate judgment of the highest point of the stock price, and the history of Shanghai Luozhu also achieved the investment income of cement stocks of 1.8 billion yuan in 2015. There are several rounds of insight into the investment in the cement industry, which is called “Buffett” in the cement industry;

6) Earnings forecast and target price, 200 billion is only a small goal

We believe that the current demand is only late and not absent, Conch’s certainty is far better than other cyclical stocks (including steel and other industries), and The growth of conch is a neglected aspect of the market. The downward trend of capital expenditure and the upward trend of dividend rate make Conch, the leading cement faucet,For cash-type companies, then the ratio of dividends in 2018 is 40-50%, which means that the probability of dividends in 2018 is more than 10 billion, which is enough to support the market value of more than 200 billion conch cement;

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From medium to long term logic In view of this, the situation of pollutant discharge permit, environmental protection tax and environmental protection high pressure has not changed. This round of supply and demand led by East China has a longer balance, and most of the regional markets where Conch Cement is located are in good order. We believe that the high probability is expected to see the restoration of the valuation center at the same time as the performance improvement (we think that 12-13 times is neutral and reasonable, and currently only corresponds to 8.7 times PE (according to 20 billion in 2018));

The following picture is our 2018 earnings forecast and scenario assumption. The net profit of the neutral forecast is 20.4 billion yuan. We maintain the medium and long-term market value of 240 billion yuan corresponding to the 46 yuan stock price judgment:

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