Why does China building materials merge cement assets into an integrated platform?

category:Finance
 Why does China building materials merge cement assets into an integrated platform?


The A-share cement plate index continued to fall. As of 10:37 this morning, the cement plate fell 1.12%, and yesterday it fell 2.08%. Evergreen (000789. SZ), which participated in its asset restructuring, fell 6.88% yesterday, while Jianfeng cement (600668. SH) fell 3.81%.

And the other two cement listed companies of China building materials fell even worse. On August 10, Ningxia building materials (600449. SH) closed at the limit price, while Qilian Mountain (600720. SH) fell 6.92%.

On August 11, Qilian Mountain fell again by 3.14%, and Ningxia building materials fell by 2.87%.

Photo source: visual China

Liu Zuoyi, President of cement geography, told time finance and economics that in the cement industry, the integration of Chinas building materials and cement plate has been set for a long time. The market has expectations, and now is a good time to choose.

As for why Tianshan shares is used as an integration platform, he said: it should be that the scale of Tianshan shares is relatively large, and the cement market in Xinjiang is better.

The birth of Chinese god mud

On August 10, the A-share cement plate index opened 2.65%, celebrating that Tianshan will become the new brother of Chinas cement plate. Jianfeng group, which participated in the asset restructuring, opened up 9.96% and Evergreen Group rose 2.96%.

The asset restructuring of Tianshan shares is that the controlling shareholder China building materials will inject its cement assets into Tianshan shares, which will make Tianshan the largest cement giant in China. Due to its combined volume and asset nature, Tianshan shares was temporarily called Chinas God clay in the future by the market.

On August 8, in a hurry within the prescribed time limit, Tianshan shares announced the asset restructuring plan.

According to the plan, Tianshan company plans to issue shares to the controlling shareholder China Building Materials Co., Ltd. (hereinafter referred to as China building materials) and other counterparties to purchase 100% equity of Zoomlion cement, 99.93% equity of Nanfang cement, 95.72% equity of Southwest cement and 100% equity of Sinoma cement. At the same time, it plans to raise matching funds through non-public offering of shares to no more than 35 specific investors.

After the completion of the transaction, Zoomlion cement and Sinoma cement will become the wholly-owned subsidiary of Tianshan, while Nanfang cement and southwest cement will become the holding subsidiaries of Tianshan.

According to the announcement, as of the first quarter of 2020, the total assets of Southern cement, Zoomlion cement, southwest cement and Sinoma cement were 90.84 billion yuan, 82.602 billion yuan, 62.745 billion yuan and 12.219 billion yuan, respectively. The total assets of the four target companies reached 247.650 billion yuan.

However, the total assets of Tianshan company is 15.442 billion yuan, which is only 6.23% of the above four companies.

In terms of net assets, as of the end of March, the total net assets of Nanfang cement, Zoomlion cement, southwest cement and Zhongcai cement were 31 billion yuan, 20.1 billion yuan, 15.8 billion yuan and 7.39 billion yuan respectively, totaling 73.6 billion yuan. The net assets of Tianshan shares are 10.126 billion yuan.

After the merger, the total assets of Tianshan will reach 263092 billion yuan and the net assets will be 83.726 billion yuan.

At the same time, in terms of cement production capacity, after the completion of the transaction, the cement production capacity of Tianshan Co., Ltd. has increased to about 430 million tons, the cement clinker production capacity has increased to about 300 million tons, and the production capacity of commercial concrete has increased to more than 400 million cubic meters.

According to the data of the top 100 cement clinker production capacity list of China in 2019 released by China cement.com, the clinker production capacity of conch cement (600585. SH) last year was 210 million tons, ranking first among A-share cement listed enterprises.

After the completion of asset restructuring, the total clinker production capacity of Tianshan will exceed that of conch cement, and Tianshan shares will be promoted to the first brother of Chinas cement industry.

Maybe the performance is not very good. Liu Zuoyi said that the asset restructuring is China building materials to put high-quality cement assets into Tianshan shares, in order to make the cement industry bigger and stronger.

At the same time, two other cement listed companies of China building materials, Qilianshan and Ningxia building materials, did not appear in the merged list.

August 11, two consecutive days, abandoned Qilian Mountain and Ningxia building materials share prices fell sharply.

The evergreen and Jianfeng group, which participated in the asset restructuring, is also good for nothing. On August 10, both Evergreen Group and Jianfeng group announced that they would participate in the asset restructuring of Tianshan shares with their shares in Nanfang cement.

A person from the directors office of Jianfeng group told time finance that the company held less than 1% of the shares of Nanfang cement, a small proportion, and only participated in it.

Why Tianshan shares?

For why China building materials to Tianshan shares as the cement assets integration platform.

Liu Zuoyi believes that it may be due to two considerations: one is that among the listed companies of building materials cement in China, the assets and market value of Tianshan shares are relatively large; the other is that the cement market in Xinjiang is relatively good and there are many projects under construction.

According to the data, as of August 11, the total assets of Tianshan shares were 15.442 billion yuan (at the end of March), with a total market value of 22.9 billion yuan; the total assets of Qilianshan were 10.974 billion yuan, with a current market value of 15 billion yuan; the total assets of Ningxia building materials were 7.414 billion yuan, with a total market value of 7.928 billion yuan.

In comparison, Tianshan shares are the sum of Qilian Mountain and Ningxia building materials in terms of asset scale and total market value.

According to the local press conference on key construction projects held in April, Xinjiang Autonomous Region will arrange 390 key projects in 2020 with a total investment of 1678.8 billion yuan, and more than 260 billion yuan of investment is planned to be completed this year. Among them, 80 projects are newly started, including jiangjunmiao Naomaohu railway and g335 highway, with a total planned investment of 38.8 billion yuan, and 190 continued projects with a planned investment of 221.6 billion yuan.

According to the data of digital cement, Xinjiang recovered strongly in the second quarter, with a monthly cement output of 6.379 million tons in June, a year-on-year increase of 36.04%, and a cumulative output of 17.409 million tons in the first half of the year, with a year-on-year increase of 13.09%.

According to the Research Report of Huaxi Securities, the cement demand in Xinjiang will remain strong in the next 2-3 years due to the centralized release of key projects. In addition, Xinjiang cement will remain at a high level in the next 2-3 years due to peak staggering production.

At the same time, the supply and demand pattern of cement in Xinjiang is good, and the impact from outside is small. According to the data of cement geography, Tianshan shares and Qingsong Jianhua have formed a duopoly pattern in the cement market in Xinjiang, with a total market share of more than 52% (Tianshan shares is 32%), with high concentration.

Both its own scale and regional cement market share are conducive to Tianshan to become an integrated platform for the asset restructuring of China building materials.

In addition, it is expected that Chinas cement assets will be integrated this time. As far as the industry is concerned, we have long expected that China building materials will carry out cement integration. As early as 2016, when China building materials and China finance merged, we had this intention. Liu Zuoyi told time finance that the integration of its cement assets is the need of China building materials itself, which can improve the synergy effect.

At present, the southern cement, Sinoma cement and Tianshan shares of China Building Materials Co., Ltd. overlap in Hunan, Jiangsu, Jiangxi, Anhui and other places. After the merger, the degree of concentration and operational efficiency can be improved. Liu said.

Huatai Securities Research Report said that the four enterprises restructured are the core cement assets of China building materials, and are expected to give full play to the synergy effect after deep integration. Taking Jiangsu as an example, Zoomlion cement 10.54 million tons and Tianshan 5.43 million tons of clinker production capacity will become Jiangsu cement dragon head, and the proportion of the province will rise to 29%.

The above-mentioned research report of Huaxi Securities also believes that after the merger, the problem of horizontal competition will be solved, the regional pattern will be optimized, and the competitiveness will be enhanced. At the same time, after the reorganization, the overall asset liability ratio of China building materials cement plate will significantly decrease (in 2019, the asset liability ratio of Southern cement, southwest cement and Zoomlion cement will reach 65.8%, 74.5% and 78.7% respectively).

Good for cement industry

At present, the domestic cement market is not a competition problem, but a problem of increasing control power. In order to maintain the relative balance of supply and demand in the regional cement market, why the Yangtze River Delta cement market is the best in the country is to have conch cement and China building materials companies to strengthen control. Liu Zuoyi believes that too many small enterprises will only lead to disordered competition.

According to the data of China cement network, the cement price in the North has been on a downward trend in recent years, while the cement price in the Yangtze River Delta region such as Shanghai, Jiangsu, Zhejiang and Anhui has increased significantly.

The merger of cement assets of China Building Materials Co., Ltd. by Tianshan Co., Ltd. not only improves the industry concentration and self coordination ability, but also makes overall arrangement of cement production in the whole country, so as to stabilize the market and balance supply and demand.

This will also make Tianshan become the second cement company with nationwide distribution.

Although China building materials did not put all the cement assets into Tianshan, after the merger, the annual cement production capacity of Tianshan is about 430 million tons, which has surpassed conch cement and has become the largest cement production enterprise in China.

At the same time, according to the operating revenue of each company in 2019, the operating revenue of five companies including Tianshan Co., Ltd. is more than 165 billion yuan, which is more than 157 billion yuan of conch cement, which will become the largest revenue of A-share cement.

However, in terms of net profit, conch cement has to play an important role. Last year, the net profit of conch cement was 34.352 billion yuan, and the merger of five enterprises of Tianshan cement was only 12.6 billion yuan, with a significant gap.

As of the first quarter of 2020, the total assets of conch cement are 179.662 billion yuan, and the net assets are 147.287 billion yuan. The asset liability ratio is only about 20%, while the return on net assets is as high as 27% in recent years.

After asset integration, although Tianshan shares can ease the pressure of capital through fixed increase, the debt ratio will still be as high as 70%, which is a great test for improving the operation efficiency and profitability of the company after the integration.

Some investors believe that in the short term, the merger has little effect on Tianshan shares, the major shareholders have not changed, and the merged assets have not changed. However, in the long run, the synergy among enterprises will be further strengthened after asset integration, and the future profitability will be improved, and the market valuation is expected to be repaired. And this reorganization strengthened the market to the Chinese building materials follow-up capital operation anticipation. Do not exclude the follow-up of China building materials will be the other two listed companies cement assets are also integrated. Liu Zuoyi said that the two companies also have business overlapping in Inner Mongolia and Ningxia. On August 10, the list of Fortune Global 500 in 2020 was released. China building materials group was shortlisted for the 10th consecutive year, ranking 187. It continued to be the top of the global building materials industry with us $57.626 billion. Source: time finance editor: Zheng Fangyuan article source: time finance editor: Yang Bin_ NF4368

Some investors believe that in the short term, the merger has little effect on Tianshan shares, the major shareholders have not changed, and the merged assets have not changed. However, in the long run, the synergy among enterprises will be further strengthened after asset integration, and the future profitability will be improved, and the market valuation is expected to be repaired.

And this reorganization strengthened the market to the Chinese building materials follow-up capital operation anticipation.

Do not exclude the follow-up of China building materials will be the other two listed companies cement assets are also integrated. Liu Zuoyi said that the two companies also have business overlapping in Inner Mongolia and Ningxia.

On August 10, the list of Fortune Global 500 in 2020 was released. China building materials group was shortlisted for the 10th consecutive year, ranking 187. It continued to be the top of the global building materials industry with us $57.626 billion.

Source: time finance editor: Zheng Fangyuan