Can Merger And Reorganization Expand The Growth Space Of Cement Industry?

On August 8, several cement enterprises in Southwest China issued price adjustment notices, with an increase rate of 20-60 yuan / ton.

At the same time, cement enterprises have increased the pace of M & A and expansion of shares in the supply side. Recently, Jidong Cement (000401) plans to purchase 47.09% equity of Jinyu Jidong Cement (Tangshan) Co., Ltd. held by Jinyu group in the form of issuing shares, absorb and merge the joint venture company, and raise funds in support.

Before that, Jidong Cement and Jinyu group (02009) had two asset restructuring, which realized that all cement assets held by Jinyu group were controlled and operated by Jidong Cement, and the problem of horizontal competition between them was properly solved. Through this transaction, Jinyu group will completely withdraw its shareholding in the joint venture.

Wei Yu, senior analyst of cement big data Research Institute of China cement.com, said in an interview with 21st century economic reporter that the profit of cement industry was significantly affected by the off-season around July this year, but in the long run, compared with the demand side, the supply side of the cement industry has a more significant impact on its profitability. In the medium and long term, merger and reorganization is expected to expand the growth space of enterprise revenue.

Relevant data show that during the "13th five year plan" period, large cement enterprise groups have enhanced industrial concentration by means of joint reorganization, integration of property rights or management rights. The cement clinker design capacity of the top 50 large enterprise groups in China accounts for 76% of the total capacity of the country. Among them, the cement clinker production capacity of the top 10 large enterprise groups accounts for 57% of the national total production capacity, and the cement clinker production capacity of the top 5 large enterprise groups accounts for 46% of the total national production capacity. Basically achieve the goal of "cement clinker, flat glass output top 10 enterprises production concentration of about 60%".

"It is expected that the regional merger and reorganization as well as the intra industry integration of large groups may set off a new upsurge, which also meets the local requirements for carbon peak." Li Chen, Deputy Secretary General of China Cement Association, said.

Necessary links in the road of development

In fact, M & A is a necessary part of the development road for some cement enterprises. Due to the limitation of physical characteristics and transportation radius, cement products are generally produced and sold locally. This also means that if cement enterprises want to rise from regional leader to national giant, merger and reorganization is one of the important capital means.

In March this year, before Jidong Cement launched its merger and reorganization again, another cement enterprise, Tianshan shares (000877), announced that it planned to purchase 100% shares of Zoomlion cement, 99.9274% shares of Nanfang cement, 95.7166% shares of Southwest cement and 100% shares of Sinoma cement from 26 trading parties such as China Building Materials Co., Ltd.

According to the annual report of Tianshan shares in 2020, the company's operating revenue reached 8.692 billion yuan, a year-on-year decrease of 10.28%, and the net profit attributable to shareholders of listed companies was 1.516 billion yuan, a year-on-year decrease of 7.31%. Industry evaluation said that once the completion of the transaction, Tianshan shares will be expected to directly from the unknown regional enterprises into a new industry leader beyond conch cement.

The merger and acquisition of Jidong Cement and Jinyu group also increased imagination space for the market. It is understood that according to the reviewed consolidated financial statements of the company for the latest year and the latest period, through the absorption and merger of joint ventures, the owner's equity and net profit attributable to the shareholders of the company in the consolidated financial statements of the company in 2020 increased from 17.711 billion yuan and 2.85 billion Yuan before the transaction to 30.266 billion yuan and 4.937 billion yuan after the transaction, respectively, The owner's equity and net profit attributable to the company's shareholders increased significantly.

Jidong Cement is the leading cement company in North China, accounting for about 30% of the total in North China and more than 50% in Hebei. Tianfeng Securities believes that the restructuring has injected new momentum into the company. As a high-quality leader in North China, the company's performance growth is expected to be flexible. It is expected that the company's expense side will continue to improve, and its operating efficiency is expected to be greatly improved. It maintains its "overweight" rating of the company, with a target price of 16.66 yuan / share.

In 2020, affected by the epidemic situation and the long rainy season, the volume and price of domestic cement market will fall. The data shows that in 2020, the total income of Enterprises above Designated Size in the cement industry will reach 996 billion yuan, a year-on-year decrease of 2.2%, and the total profit of the whole year will be 183.3 billion yuan, with a year-on-year decrease of 2.1%. From January to May this year, the operating income of cement industry above designated size increased by 16.2% year on year, and the total profit decreased by 2.0% year on year. Wei Yu said that cement enterprises are still facing relatively large profit pressure, which is expected to ease in the second half of the year. In the medium and long term, mergers and acquisitions are expected to expand the growth space of enterprise revenue.

Double carbon target forces integration

Behind the continuous acquisition of cement enterprises, it is not difficult to see the figure of the policy. At the end of last year, China made a global commitment to achieve a carbon peak by 2030 and carbon neutrality by 2060. Subsequently, the China Building Materials Federation issued a proposal to the whole industry. For the most important cement industry, it is proposed to achieve the carbon peak in advance by 2023.

Some analysts told the 21st century economic reporter that at present, China's cement industry is still showing a large but not strong development trend, especially in the structure there are some unreasonable phenomena, for example, small cement plants developed at the cost of resource consumption, energy waste and environmental pollution still occupy a certain proportion of the industry, affecting the quality and growth rate of the whole industry.

Relevant data show that in 2020, China's cement industry carbon emissions will be about 1.375 billion tons, accounting for about 13.5% of the current national total carbon emissions, ranking second only to steel in the industrial industry. China's cement clinker carbon emission factor still needs to be reduced by 12% from the Paris Agreement 2050 target and 7% from the International Energy Agency 2030 target.

According to the "Guiding Catalogue for eliminating backward production capacity in building materials industry" jointly formulated by China Building Materials Federation and 15 professional associations, by the end of 2022, all cement clinker production lines with a daily output of less than 2500 tons will be eliminated. On March 10 this year, Shandong provincial environmental department took the lead in upgrading the capacity withdrawal to the policy level, and issued relevant policies, which clearly pointed out that by the end of 2022, more than half of the 2500 t / d clinker production line would be integrated and withdrawn; By the end of 2025, all 2500 t / d clinker production lines will be integrated and withdrawn.

Li Chen, Deputy Secretary General of China Cement Association, said that it is expected that a new upsurge of regional merger and reorganization and intra industry integration within large groups may be set off, which also meets the local demand for carbon peak.

On August 1, the Ministry of industry and information technology issued the revised implementation measures for production capacity replacement of cement glass industry, which requires the use of restricted cement clinker production line in the national industrial structure adjustment catalogue as the replacement index and cross provincial replacement cement clinker index, and the capacity replacement ratio shall not be less than 2:1. Bao Rongfu, an analyst with Tianfeng securities, said that at present, the growth space of demand side is limited. The new rules of cement industry replacement have increased the replacement proportion and replacement requirements in different places, which is expected to bring substantial improvement on the supply side. It is expected that small enterprises with high energy consumption on the supply side will be cleared up quickly, and the market share of large enterprises will be further increased, and there will be opportunities for valuation and repair.