The expectation of “steady growth” is getting stronger
Since Q4 of the 21st year, the downward pressure on the economy has increased. Since December, the Politburo meeting and the central economic work conference have made clear the policy main line of “taking the lead in stability and seeking progress in stability” in 2022. Since January 2022, policies have been intensively voiced, emphasizing that “infrastructure investment is moderately ahead of schedule”. With the gradual availability of local government special bonds and other financial funds, we judge that the growth rate of infrastructure investment in 2022h1 is relatively flexible; However, the practical constraints of local government debt still exist. Perhaps the stable and large volume of public infrastructure REITs can stabilize the growth rate of infrastructure investment at a relatively high level for several consecutive quarters. In addition, the direction of financial development may not be limited to the field of infrastructure investment, such as affordable rental housing, education investment, health investment and other fields are also the focus, which can also stimulate the demand for cement.
Short term cement stock valuation or repair
From the historical experience of resumption, under the expectation of “stable growth”, the valuation of cement stocks is relatively flexible. Taking Huaxin Cement Co.Ltd(600801) as an example, its valuation has increased by about 30% – 50% in the short term in several rounds of “steady growth” over the past 18 years. The valuation elasticity of cement stocks stems from its high price elasticity under the scenario of supply-demand mismatch.
Why is the price elasticity of cement high under the scenario of phased supply-demand mismatch? Mainly due to: 1) the transportation distance of cement is relatively short and the inventory is small; In the case of periodic mismatch between regional supply and demand, there is no need to worry about the disturbance of inventory and external input to regional supply; 2) The regional competition pattern is good. Under short haul distance, the market concentration in the region is relatively high; The policy of “shifting peak and limiting production” also makes the competition within the region more orderly. At the same time, since the supply side reform in 2016 (mainly due to the restriction of new supply), the overall cement price has shown a trend of “rapid rise and slow decline”, and the cost transfer ability and profitability of the industry have been significantly improved.
Game between certainty and uncertainty
Certainty: 1) in 2022h1, the capital construction investment will be determined, or contribute to the demand increment; 2) Investment growth in areas such as affordable rental housing, education investment and health investment is highly uncertain, which can also contribute to the increase of demand. 3) By the end of 2021, the national po42 5. The average price of cement is 560 yuan / ton, the highest level in the same period since 2015. Entering the off-season at a historical high price means that if the price level in 22q2 peak season is further improved, the profits of cement enterprises will have a large upward space.
Uncertainty: real estate is the most important downstream demand area of the cement industry, and the pressure trend of new construction area of real estate is relatively clear; However, there is still a large demand for cement in the construction of the main structure. Under the dual factors of the current high construction area and the constraints of the “guaranteed delivery building” policy, the demand for cement still has a certain support. Overall, real estate has a negative impact on cement demand, but there is limited downward space for demand.
Investment suggestion: the expectation of “steady growth” is rising. From historical experience, the expectation of “steady growth” tends to increase the cement valuation stage by stage. It is suggested to layout the short-term valuation repair opportunities of cement stocks. Subject recommendation: Huaxin Cement Co.Ltd(600801) ; Anhui Conch Cement Company Limited(600585) 。
Risk analysis: the promotion of “steady growth” policy is less than expected; The implementation of “double carbon” and “double control of energy consumption” policies was not as expected; Risk of rising prices of raw and fuel materials.
