Tower Group (002233) Cement Map Series Report: Scale + Cost Advantage Creates Yuedong Oligopoly Assets Entering Harvest Period
Investment points The cement industry has entered the stage of the industry’s life cycle. The reinvestment capacity and expectations of enterprises are weakening, the industry structure is solidifying, and the trend of continuing to focus on the leader remains unchanged.
For the investment of leading enterprises in which the cement competition pattern has been solidified in some regions, we recommend lowering the rate of return expectations, lengthening the investment dimension, and focusing on strengths.
As a leading company in the eastern Guangdong region, through the expansion of production capacity in recent years, the Tower Group has continued to strengthen its internal competitiveness, and there is still room for potential substitution in the region’s internal demand; it is expected to become a stable income with high dividends and high returns in the future.
Here we will conduct multiple detailed analyses of the competitive advantages and value attributes of the Tower Group; provide a relatively new idea for cement investment.
The Taipai Group is a leading cement company in the eastern Guangdong region. It has a reasonable production capacity layout and strong resource endowment, and is highly competitive in a relatively closed market in the region.
The company has three production bases in Meizhou, Huizhou, Guangdong, and Longyan, Fujian (only 20 km away from the Meizhou base). It is an absolute leader in the eastern Guangdong region. Due to the complex terrain, it has a strong right to speak in the relatively closed eastern market.
The company’s own limestone mines will continue to benefit from the general trend 杭州桑拿 of “clinker resource utilization” in the industry.
In recent years, the company has added two new straight lines. The cost is the lowest in eastern Guangdong. The cost per ton is about 20 yuan lower than the cost of a 5000t / d production line in the region.
The cost and scale are as absolute as possible. The company’s speaking power in the region is strengthened. From the strategic choice, whether it is relative strategic intimidation or genuine price war expansion, it is sufficient.
The strength of the milling station along the coast of eastern Guangdong will not have an effective impact on the sales channels of the tower. In the future, the company will be invincible in eastern Guangdong.
The company has long recognized that the cement process has been improved and its operating efficiency is excellent.
The company’s cement clinker production line is advanced and the scale of the single unit is large; the sales model combines the characteristics of the region with infrastructure and rural-oriented characteristics, through distribution-oriented, direct sales as a supplement, and its leading advantages in key regional projects, ensuring the companySales channels, tons of selling expenses are extremely low.
The cement demand potential in eastern Guangdong is relatively high, and the construction of the Greater Bay Area is also expected to further boost regional cement demand.
In the case of severely weak regional infrastructure facilities, we expect that the regional cement demand will have great room for future development.
In the fourth quarter of 2019, it is expected that the company’s market share in the region will gradually increase to 60% after the company’s second plug-in line is put into production, and continue to improve the company’s competitiveness.
The balance sheet is well repaired, high cash flow returns, potential dividend returns, and the company ‘s asset value can be revalued.
According to the company’s total market value deducted cash in hand, the overall discounted cash flow requirement is only less than 9 billion, according to the company’s assumption of 1 billion to 2 billion net cash inflow per year, the overall asset side safety margin is high.
With the reduction of capital expenditures, the company’s future dividend ratio will remain high (almost 59% in 2018).
We estimate the company’s net profit attributable to mothers to be 17 in 2019.
2.6 billion, after deducting 4.5 billion in net cash, corresponding to only 5X of internal PE; the current index rate level is close to 8%, and the safety margin is high, giving an “overweight” rating.
Risk Warning: 1.
Supply-side reforms fall short of expectations