金隅集团(601992)

Large improvement in gross profit for the cement business. BBMG’s cement segment reported pre-tax profit of RMB1.45bn in 1H18 (36.9% of the total), a marked improvement from RMB245m in 1H17. Gross profit per tonne rose from RMB72 in 1H17 toRMB106 in 1H18 thanks to a rising ASP. Meanwhile, sales volume dropped 4.8% YoYto 43.6m tonnes.

Much better performance of the property development business in Q2. In 1H18,GFA booked for the property development business rose 6% YoY to 0.431m m2, muchbetter than the 29% decline YoY in Q1. This segment contributed pre-tax profit ofRMB1.98bn in 1H18 (50.5% of the total), up 32.8% YoY. The Company maintained itsguidance of booking about RMB21bn in revenue for the full year, implying about 30%growth YoY. In terms of GFA, contracted sales dropped 34% YoY to 0.518m m2 in 1H18.Management expects contracted sales to pick up in 2H18 and aims to achieve about1.2m m2 for the full year, implying a decline of 12% YoY, much better than the decline of34% in 1H18.

Cement business to remain upbeat in 2H18. Management expects cement demandto pick up during the peak season in 2H18 in north China, i.e. September and October.Therefore, there is still room for the cement ASP to increase further. Regarding theXiongan New Area Development, the Company estimates that incremental cement demand will be about 7m to 10m tonnes per annum in the first few years if more projectsstart construction. (Note: BBMG’s cement and clinker sales volume in 2017: 102.6mtonnes.)

Upward earnings revision. Previously the Company guided the gross margin of theproperty development business to be about 27.5% in 2018E. Management turned morepositive yesterday and expects the full-year gross margin of this segment to reach about30%. Therefore, we raise our 2018E/2019E EPS by 12.6%/14% based on the updatedguidance and a more positive view of the cement business (2018E gross profit per tonneincreased from RMB92 to RMB110).