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Shares of Chinese cement producers have declined by 14% year to date as the domestic Covid outbreaks and the downtrend in the housing market have led to sluggish cement demand, rising coal prices squeezed cement producers’ profits and the market is concerned about a possible price war, J.P. Morgan said in a note on Friday.
As of mid-July, China’s cement shipments and prices had remained disappointing and combined with seasonable factors, cement demand is unlikely to rebound in the near term, the bank said.
Assume the mainland China will no longer impose lockdown measures, the cement sector is expected to see a recovery in the fourth quarter of the year, it said.
The bank lowered the forecast of cement makers’ profits, expecting their Q3 profits to drop by 33% – 84% year over year. It also lowered the forecast of the sector’s profits in 2022 and 2023 by 13% and 52%, respectively, and cut cement producers’ stock price targets by 5% – 15%.
In particular, the bank lowered target price of Conch Cement to HK$46, with Overweight rating. China Resources Cement was given a Neutral rating with a target price of HK$6.