“建材下乡”政策对水泥上市企业的影响：政策对水泥行业有利,但影响相对有限

1 Please see important notice on the last page. Sector CommentPotential government policies have limit impact on cement companies The State Council issued the “Expansion of building material to the countryside policies and the implementation of the recommendations” in the beginning of 2010. The implementations of programs and policy’s recommendations encourage farmers to build houses by using new building materials and purchase of new energy-saving overall housing. We estimate the full implementation of the policies will be around the beginning of 2011. On the basis of cement consumption takes a large proportion of house construction in the rural areas, we estimate the policies may benefit cement industry the most, but still awaiting more details to be announced. Initial hypothesis We assume that 30~35% of cement demand from rural areas, and the policies can promote demand of cement about 10%. China’s total cement consumption was 1.63 billion tons in 2009, we estimate the additional demands boost by the policy will be between 48~57 million tons. We raised our cement capacity utilization for 2010 to 81.5% from 79%, but this figure is still below the peak values 85% and 91% in 2006 and 2007 respectively. Analysis based on the “Home appliances to countryside” data In 2009, the “Home appliances to countryside” data show that the policies promoted both home appliances’ total sales volume and sales amount has a double-digit increment. As at the end of December 2009, the total number of sales volume and sales amount exceed 37 million units and 69 billion yuan respectively. Through the study of above sales data, we believe that the impacts in different regions vary greatly. The following provinces accounted for the dominant position of appliance consumption in rural areas by the proportion of total sales amount: Henan (14.5%), Shandong (12.3%), Sichuan (11.2%), Hunan (5.9%), Hubei (5.7%), Anhui (5.4%) and Hebei (5.5%). After the full implementation of the “Building material to countryside” policies, we estimate the market shares for CNBM, Sinoma, Anhui Conch, Shanhui Cement and China Resources Cement will be 6.4%, 1.7%, 10.4%, 11.7% and 2.3% respectively. Estimate cement consumption increment, Method I Generally, cement account for the cost of house construction from 10% to 15% in rural areas. In 2008, the rural residents spent for housing maintenance and construction were around 500 billion yuan. Assuming that the new policy can stimulate 10% growth on the rural new housing constructions and the rural residential area per capita growth rate remain at the mean value 3.5%. We expect the consumptions of cement will be boosted up between 6.8~10 billion yuan, and this is equivalent to the 2009 national cement demand has been driven 1.7~2.5% up, hence the effect of the policies are limited. Neutral (initial：Neutral) China Merchants Securities (HK) Zhong He hezhong@cmschina.com.hk Hank Xu (852)31896122 hankxu@cmschina.com.hk 04 Mar 2010 HSI Index 20494.77HSCEI Index 11968.48Sector information %No. of listed stocks Market cap（bn） Sector performance %1m6m12mAbsolute return Relative return Related research Policies will benefit cement industry, but with limit effect 2 Please see important notice on the last page. Sector CommentEstimate cement consumption increment, Method II The consumption of cement in rural house construction per square meter is about 0.2~0.3 tons. In 2008, the newly built residential areas of rural areas are 844 million square meters. We assuming that the new policies can stimulate 10% growth on the rural new housing constructions and the newly built residential areas per capita in rural areas remain at an average growth rate 3.4%. We estimate the newly built residential areas will has 113 million square meters increment in rural areas, and this is equivalent to 1.4~2.1% of the 2009 national cement demand 1.63 billion tons. Hence, the effect of the policies are limited again. Companies’ financial indicators and investment summary EPS（RMB） PE Company Current price（HKD） 2009E 2010E 2009E2010EInvestment summary Conch 49.90 1.99 2.60 21.71 16.62 Sales account for 25% in rural areas, mkt cap/ ton is highCNBM 14.10 0.92 1.16 13.72 10.89 PE and mkt cap/tons is cheap Sinoma 5.20 0.25 0.35 17.86 12.99 PE and mkt cap/tons is cheap Shanshui 4.62 0.29 0.40 13.51 9.80 Hold Shandong cement mkt share c.30%, PE is cheap BBMG 7.83 0.52 0.68 13.18 10.05 largest supplier in Bohai Rim region, PE is cheap CR cement 3.63 0.24 0.22 13.24 14.52