UBS Global Research lowered its target price for BBMG Corporation (02009) to HK$3.6 from HK$6, and maintained its "buy" rating.
The resarch house said cement's average selling price (ASP) in BBMG's key exposure of North China has risen 25% YTD (up 11.8% for China), due to rising demand and limited capacity additions.
Cement demand had been falling for 4 consecutive years - it dropped 33.5% over 2011-15 and finally rose 12.8% YoY in the first 8 months of 2016. UBS expects cement demand to turn around in North China in 2016 and increase 5.0% YoY in 2017, triggered by accelerating infrastructure fixed asset investment (FAI) and resilient property FAI.
With no potential new capacity additions, UBS expects the cement ASP to increase 3% YoY
in 2017 due to improving supply-demand dynamics. It is also positive on BBMG's upcoming acquisition of Jidong Group, which could offer certain earnings upside potential in the long term.
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