The creator is an analyst of NH Funding & Securities. He could be reached at minjae.lee@nhqv.com. — Ed.
Within the home cement business, we count on price financial savings from elevated demand for cement, value hikes, and funding in different fuel-based amenities to look one after the other from 2021. Anticipating all the cement business to learn, we draw consideration to Ssangyong Cement, Sampyo Cement, and Asia Cement.
Three key funding factors
From 2021, we count on the results of rising cement demand from housing provide enlargement insurance policies, normalization in cement costs (which have fallen behind demand over the previous eight years), and price discount from funding in different fuel-based amenities to grow to be seen one after the other for the home cement business. In contrast to over 2015~2017, when demand progress and value hikes didn’t end in profitability enchancment, this time round, the knowledge of realizing price financial savings is producing excessive revenue visibility.
Coverage to develop housing provide is being highlighted by the by-elections of the Seoul and Busan mayors in Apr 2021 and the twentieth presidential election slated for Mar 2022. We count on home cement demand to get better to 48mn tons in 2021, given the rise in housing begins, enlargement of SOC funding associated to 3rd New City tasks, and the greater than 1mn tons of deferred quantity ensuing from the 2020 wet season and Covid-19.
In 4Q20, some cement firms tried to ease their price burden stemming from minimal wage and freight fee will increase over the previous eight years, larger environmental prices (stemming from the implementation of a carbon credit score buying and selling system), and native useful resource facility taxes through cement value hikes. We count on value hikes to drive enchancment in cement makers’ financials, which have been weakened by large-scale M&As over the previous 5 years.
Funding in different fuel-based amenities ought to scale back bituminous coal enter, hedge towards bituminous coal value enhance, and generate income from using waste in cement manufacturing. When producing 10mn tons of cement, financial advantages ought to exceed W60bn (primarily based on bituminous coal value of W144,000/ton, different gasoline substitution fee of 30%).
Complete method advisable
Over 2015~2017, the cement sector traded at a premium to the development sector due to robust cement demand progress. Throughout that interval, the cement business’s P/B climbed by over 90% in comparison with that of the development business in step with cement demand developments. Because the three above-noted positives anticipated from 2021 apply to all the cement business, we advisable taking a complete funding method encompassing Ssangyong Cement, Sampyo Cement, and Asia Cement. For reference, excluding Ssangyong Cement, the cement sector is buying and selling at 2021E P/E of 6.9x and P/B of 0.5x.
