Fujian Cement (600802) Company In-depth Study: Limestone Resources Outstanding Benefits Mid-Long Term and Improved Structure

Fujian Cement (600802) Company In-depth Study: Limestone Resources Outstanding Benefits Mid-Long Term and Improved Structure
Our first coverage report (20200205 “Fujian Cement: High Elasticity and Underestimation, Concerned about the Expected Poorness”) started with the company’s poor expectations, the industry’s poor expectations, and the performance elasticity.Our second in-depth prediction of medium- and long-term value starts with a hint of difficult-to-detect expectations and a horizontal discussion of the “resource bottom” of cement prices.Fujian Cement has prominent mining resource advantages. It is expected to be fully converted into cost advantages in the future, and the industry within the region will continue to be optimized. Why choose a limestone angle?The value of limestone mines is reflected in two aspects. First, the self-supplied cost is lower than external purchases, the longer the mineable years, the cost advantage outperforms, and the market voice is strengthened. The second is the value of the mine is realized and the price of finished cement is supported.The stronger the power, the company will consider the scarcity of raw material resources, change its views on shares and prices, and bring about changes in supply relations. Fujian’s cement limestone resource has outstanding advantages. Regardless of the remaining years of the existing mine or the mine reserve situation, it belongs to most of the cement enterprises in the province.The remaining years of the mining rights that the company is serving are basically 10-20 years, and the two expired years are less than 10 years. The company has reserved two reserve mines, and the expected mining life is at least 30 years. In the next 5-10 years, most of the limestone mines in the province will face the issue of expiration of mining rights. Of the 112 limestone-related mines we have sorted out, the number of expirations within 5 years will account for 42%, and within 10 years, 78%. Rare materials are more expensive, supply is reduced, operating and management costs are increased, the price of limestone is increased, and the production cost of cement enterprises that have purchased limestone has increased at the same time.There is a significant difference between self-supplied and outsourced costs. The average outsourcing price of limestone exceeds 20 yuan / ton, while the cost of self-supplied itself has remained relatively stable. Recognized: Limestone resources are scarce, and the medium- and long-term supply pattern is potentially changing.We are divided into long-term and recently prompted two key changes. We believe that the medium- and long-term supply pattern will improve marginally, and the overall industry of Fujian Cement in the province will continue to optimize. ①For the long term: Suppose that in the next 5-10 years, the cost of limestone will increase for most cement enterprises in the province (increased outsourcing costs + higher costs for newly acquired mines), and the cost advantage of Fujian cement will be prominent.Cement products are highly homogeneous, and the cost largely determines the pricing power of the enterprise.During the steady period of demand, the company strived to achieve cost advantages to optimize the industry’s position; during the downturn of demand, the company strived to rely on cost advantages to develop more market share. ② For the near-term: the industry consensus of orderly competition progresses and strengthens, transforming from common demand to profit demand.Disorderly competition will lead to low-priced cement sales, which is equivalent to consuming “precious” limestone resources.Cherishing the use of limited 都市夜网 limestone resources is expected to become an important driving force for companies to stabilize prices and ensure profitability. Key projects took the lead to resume work.Recently, the resumption of work in Fujian Province has accelerated significantly. Five railway projects have been fully resumed. Nearly 80% of the enterprises in Sanming and above have resumed production.Cement demand is stable, and the boom is expected to continue, focusing on the implementation of infrastructure projects.In 2020, the Ministry of Finance issued a special debt limit of $ 48.6 billion in Fujian in 2020, focusing on railways, highways, and rail transit.Fujian is under construction in recent years, and the proposed railway project runs through. Mountainous areas often bring through tunnels, railway design, and increase cement usage.We are optimistic about the prosperity of the first-tier infrastructure. Earnings forecast: We maintain our 2019-2020 performance forecast unchanged at 4 respectively.71, 7.67 trillion, corresponding to PE of 8.1X, 5X.Combining our research indicators with the dynamic assessment of changes in the cement sector (from 6X to 7).32X), moving the target price from 12.05 yuan increased to 14.05 yuan, maintain “Buy” rating. Risk warning: Real estate investment intensity and progress of key projects are less than expected; rainwater weather changes are less than expected