The creator is an analyst of NH Funding & Securities. He might be reached at email@example.com. — Ed.
Within the wake of a latest share worth surge, we see a number of components that should be checked so as to justify an elevated valuation for the cement business. We view the important thing verify factors as being: 1) whether or not a cement demand restoration turns into seen; and a couple of) the extent of room for additional share worth development. Ssangyong Cement, Sampyo Cement, and Asia Cement are all nicely located to profit from a cement demand restoration.
Interpretation of cement scarcity information
In accordance with media experiences, end-March cement inventories stood at solely 40% (51.0mn tons) of the suitable stock stage (1.3mn tons) attributable to: 1) delayed development work at a number of initiatives amidst a chilly wave; and a couple of) lengthened upkeep intervals for manufacturing services. Usually, the storage interval for cement tends to be brief at round 1~2 months, and demand traditionally concentrates in March~June and September~November. For reference, the interval over which manufacturing is disrupted because of the set up of an alternate fuel-based services is often inside 30 days.
Korea’s cement business is able to producing as much as 65.0mn tons of cement yearly (5.5mn tons/month on common). The typical month-to-month demand in 2016 (the time of a housing development growth) was 5.25mn tons, with the utilization charge clocking at over 90%. Cement demand this 12 months is projected to whole 48.0mn tons, with a median of round 4mn tons/month. Towards this backdrop, the above-mentioned media experiences on cement stock scarcity are interpreted to recommend the next: 1) housing development begins have gotten bigger in scale amid extra favorable housing market circumstances; and a couple of) the set up of different fuel-based services is growing throughout the entire cement business.
The variety of days under -5℃ over the latest winter was 21 days, nearly the very best quantity witnessed up to now 8 years (excluding 2018: 25 days of winter under -5℃). In the meantime, the 12-month shifting sum of latest housing begins got here in at 538,000 models in Jan 2021, returning close to to the 2018 stage. In our view, amidst an increase in new housing begins, development has been progressing quickly so as to make up for the delay attributable to the chilly climate throughout the latest winter. In the meantime, searching for to strengthen ESG, the cement business as an entire is upping funding in various fuel-based services.
Mid/long-term valuation benefit set to rise
Based mostly on 2021E earnings, the straightforward common P/E for Ssangyong Cement, Sampyo Cement, and Asia Cement stands at 13x. Nonetheless, this determine additional declines when taking a look at earnings forecasts for 2022 and 2023 (2022F: 9x; 2023F: 8x), throughout which era cement demand is predicted to climb in earnest.
In estimating earnings for these three firms, we assume cement demand of 48.5mn tons for 2021, 50.0mn tons for 2022, and 52.0mn tons for 2023, forecasting that the cement worth will rise 3% in 2H21 to W77,500/ton. Given the conservative nature of our demand and worth assumptions, there seems a very good probability that cement gamers’ precise earnings will are available in higher than our forecasts, and that their mid/long-term valuation benefit will strengthen.