China Cement_ Analysis of the 2024 Cement Industry Capacity Replacement Regulations

Summary of the China Cement Industry Conference Call Industry Overview - The conference call focused on the Cement Industry in China, particularly the 2024 Cement Industry Capacity Replacement Regulations issued by the Ministry of Industry and Information Technology (MIIT) [1][2]. Key Points from the 2024 Regulations 1. Stricter Capacity Replacement Criteria: - The 2024 Edition tightens the definition of idle capacity, stating that cement clinker production lines operating less than 90 days per year for two consecutive years are ineligible for replacement [2]. 2. Pollution Control Measures: - A strict ban on new cement clinker capacity in key pollution regions is introduced, along with prohibitions on cross-province capacity replacements unless specific conditions are met [4]. 3. Refined Replacement Standards: - The new regulations provide specific standards for different replacement contexts, allowing a 1:1 replacement ratio for intra-company or intra-city relocations [5]. 4. Simplified Approval Process: - The approval process for capacity transfers within the same corporate group or pollution-control key regions is streamlined, waiving the need for approval from the original location's industry authority [6]. 5. Enhanced Energy Efficiency Standards: - Replacement capacities must meet current national energy efficiency benchmarks, excluding lower-efficiency capacities from replacement [7]. 6. Increased Replacement Ratios: - The replacement ratio requirement in key pollution-control regions is raised to at least 2:1, and in non-key areas to 1.5:1, compared to the previous standard of 1.25:1 [8]. Company Insights - Anhui Conch Cement (0914.HK): - Target price set at HK$22 based on a price-to-book (P/B) ratio of 0.55x for 2024, reflecting a downcycle in cement demand due to a slump in property demand [9]. - Risks include a slowdown in property growth, unexpected new cement capacity additions, and rising coal prices [10]. - **China National Building Material (3323.HK)**: - Target price set at HK$4.0 based on a 2025 earnings-based valuation, with expectations for the stock to trade towards its A-share subsidiary Tianshan Cement after re-listing [11]. - Risks include weaker-than-expected cement demand and prices, and higher-than-expected capacity additions [12]. - China Resources Building Materials Technology Holdings (1313.HK): - Target price set at HK$2/share based on a P/B ratio of 0.29x for 2024, with ROE forecasts lower than historical averages [13]. - Risks include weaker cement prices and profits, higher production costs, and a weaker macro economy [14]. Investment Recommendations - The analysis maintains a Buy rating on Anhui Conch, China National Building Material, and CR Cement, indicating a preference for cement companies over steel in the near term [1]. Additional Considerations - The revised regulations aim to align the cement industry with carbon reduction goals, promoting a greener and more efficient industry [1]. - The call highlighted the potential for further policies to curb cement supply, indicating a proactive approach to managing industry capacity and environmental impact [1].