Builds the Pillars of South China Cement Market
China Resources Cement (1313), a company established in 2003 and listed in Hong Kong Stock Exchange in 2009, currently has asset value approaching HK$40 bln. It possesses unique limestone resources of high quality along the coast of South China and 30 large-scale clinker productions lines. With this backdrop, the company’s annual cement production exceeds 70 mln tons, ranking the third within the nation. Robert Lau, Executive Director and Chief Financial Officer of China Resources Cement Holdings, said when he was having an interview with our website that China Resources Cement possesses leading advantages in terms of costs per ton (of cement) and ‘EBITDA’ compared with Shanshui Cement (00691) and China National Building Materials (3323), which allow the company to be less sensitive towards the average selling price (ASP). Furthermore, the company is located at the south of Changjiang, where the cement market price is more stable than that in Eastern China. China Resources Cement is capable of achieving cost effectiveness to the extreme through utilizing its cement production chain, which comprises the four major elements of limestone extraction, clinker kilning, cement grinding and concrete production.
According to the ‘Twelve Five-year Plan on Cement Industry” published at the end of 2010, the Chinese central government wants to foster merger and acquisition within the industry with a view to seeing the 10 major cement enterprises taking up over 35% of market share by 2015 the latest. It is expected that the Chinese government will promote the launch of energy-saving and emission reduction measures as well as merger and acquisitions in order to assist cement industry development and raise product quality in the next five years. In recent years, the scale of Mainland’s cement industry is rapidly expanding. The national cement production reached 1.88 bln tons in 2010, which was equivalent to 1.7 times of that in 2005; the average annual growth was 11.9%. Nonetheless, cement production is a regional industry and it is not very possible for cement to reach cross-border markets in a large-scale manner. Lau stressed that the cement produced in the four major South China regions of Guangdong, Guangxi, Fujian and Hainan would only be sold in the same region and would not sold in areas beyond South China. Only a little of the group’s production would be exported to Hong Kong and Macau. The reasonable transport radii of cement, which is quite heavy in nature, are 200 km for land routes, 500 km for railways and 1,200 km for water transport. Relevant costs would eat up the profit if transport distance exceeds the above radii, Lau stated.
The group’s core business is the sales of cement and concrete, which accounted for 80% and 20% of business in recent years respectively. 99% products target the domestic market while merely 1% cement is exported to Hong Kong and Macau.
The management of the group projected the production capacities of clinker, cement and concrete will reach 55.8 mln tons, 77.7 mln tons and 44 mln tons in 2012. They formulated a “3 + 2” development strategy for the group, of which “3’ means control of limestone resources, transformation of limestone into cement and logistic network of resources distribution while “2” indicates lowering overall costs and taking the lead in regional markets. The investment costs in Fengkai plant located at Zhaoqing of Guangdong are immense, Lau said. At this plant, a two-way conveyor belt with a total length of 48 km was constructed at a consideration of more than RMB1 bln. The huge belt is responsible for transporting limestone, a raw material of cement production, to the production base at Fengkai for making clinker. In the long term, the belt could help reducing logistics costs by a large extent.
Last year, area of properties with construction completed equaled 750 mln sqm. The amount of cement used was approximately 190 mln tons with reference to 4 sqm. could be built by every ton of cement on average, Lau pointed out. The total use of cement last year in China amounted to 1.88 bln tons and therefore building construction only accounts for around 10% of overall cement use. In the coming four years, 31 mln units of low-income housing will be built, which means more than 7 mln flats will be constructed every single year. Demand for cement will go up continuously, Lau said with confidence to a certain extent. Lau emphasized, in response to the question regarding the investment value of China Resources Cement (1313), that the most important thing is that the corporation is a rapidly growing one with a growth rate of 30% – 40% in the past three years. On the other hand, the firm has obtained the authority’s approval in 2006 to engage in mass production of cement and has planned to largely increase its number of production lines so that it could develop hand in hand with the market. Lau frankly admitted merger and acquisition is a must in order to strengthen and expand the enterprise. At the moment, the cement demand in South China market is approximately 300 mln tons. The group needs to produce an additional 15 mln tons of cement to realize a 5% growth. This, in fact, explicitly reveals the huge market potential and vast opportunities ahead. (k)