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Shares of Chinese cement producers trade lower on expectation of sector-wide over-capacity amid sluggish real estate activities. Conch Cement is sliding more than 5% in Hong Kong, CNBM down 4.6%, Huaxin Cement down 1.9% and China Resources Cement down 1.75%.
As of 14 July, more than 230 property projects had been affected by the Chinese homeowners’ mortgage boycott, involving over 20 regions including Henan, Hunan and Hebei, etc., according to Macquarie. Even before the incident, the contracted sales in the 30 major Chinese cities had contracted by 44% year over year in the first week of July, the broker said.
The negative structural impact from the de-capacity of China’s property market was underestimated and may result in an extended period of cement over-capacity, it added.
Consequently, the earnings of Conch Cement and China Resources Cement were anticipated to be at risk throughout this year. The 2Q22E and 2022E cement gross profit per ton (GP/t) for Conch Cement were cut by 19 yuan and 24 yuan, respectively. The 2Q22E and 2022E cement GP/t for China Resources Cement were lowered by HK$23 and HK$17, respectively.
Conch Cement was added to the sell list of Macquarie. The target price for the stock was cut from $28 to $25. China Resources Cement’s target price was cut by 17% to $4.23. Both stocks were rated at Underperform.
