Deutsche Bank Research 7T2se3r0Ot6kwoPa Asia Europe North America Consumer Autos & Auto Technology Industry China Pulse Check Date 24 September 2024 Industry Update Takeaways from CPCA expert call | --- | --- | --- | |-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------| | | | | | | | Edison Yu | | | We hosted Mr. Dongshu Cui, Gen ...

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: China Materials, specifically traditional materials including bauxite, alumina, copper, steel, and coal [2][3][5] Core Insights and Arguments - **Bauxite and Alumina Supply Constraints**: - Supply disruptions in China's domestic bauxite due to mine safety controls, environmental concerns, and declining grades have led to a 16% year-over-year decrease in domestic bauxite supply [3] - Alumina producers are facing quality issues as they mix domestic bauxite with imported bauxite, resulting in an increase in the alumina-to-aluminum ratio from 2:1 to 2.5-2.8:1 [3] - Anticipated restocking demand ahead of October Golden Week and Chinese New Year is expected to tighten alumina supply both domestically and globally, leading to higher prices [3] - **Copper Market Dynamics**: - Copper smelters are expected to face raw material shortages and lower treatment and refining charges (TC/RC) in 2025, with cash costs projected around US$30-50 per ton [4] - Total copper demand in China is forecasted to increase by 2.5-2.7% year-over-year in 2024, driven by demand from the grid, electric vehicles (EVs), and solar industries [4] - **Steel Production Challenges**: - Steel mills have been operating at a loss, with crude steel production down 3.3% year-over-year for the first eight months of 2024 [5] - Production is expected to remain around 1 billion tons in 2024, with continued production controls anticipated [5] - **Coal Price Projections**: - Coal prices are expected to range between RMB 700-900 per ton over the next 12 months, with a projected 1-2% year-over-year decline in production due to sluggish demand [5] - Coking coal prices have reportedly bottomed out, with a significant drop in average selling prices expected in 2024 [5] Additional Important Insights - **Company Preferences**: - Preferred companies in the sector include Chalco, Hongqiao, Zijin, and CMOC, which are expected to benefit from high alumina and aluminum margins [2][3] - **Price Target Adjustments**: - Price targets for various companies have been adjusted, with notable changes for Baosteel (from RMB 8.20 to 7.40) and Jiangxi Copper (from HKD 20.10 to 18.00) reflecting market conditions [8] - **Earnings Forecast Changes**: - Earnings forecasts for several companies have been revised, with Jiangxi Copper's EPS estimates down by 4% for 2024 and Chalco's estimates up by 18% for the same period [19][22] - **Market Sentiment**: - The overall market sentiment remains cautiously optimistic, with a focus on selective investment opportunities within the traditional materials sector [2][8] This summary encapsulates the critical insights and projections discussed in the conference call, providing a comprehensive overview of the current state and future outlook of the China materials industry.

Summary of Conference Call Notes Industry Overview - **Industry**: Greater China Materials - **Key Focus**: Bauxite, alumina, lithium, steel, cement, and solar glass sectors Core Insights and Arguments 1. **Bauxite and Alumina Supply Tightening**: Continued tightening in bauxite and alumina supply is expected, with domestic bauxite supply down 16% YoY YTD due to mine safety and environmental controls [1][1][1] 2. **Steel and Cement Production Cuts**: Steel production decreased by 3.3% YoY in the first eight months of 2024, while cement production fell by 10% YoY. A production control policy for cement is anticipated to remove 20-30% of excess production [1][1][1] 3. **Lithium Production Adjustments**: Production cuts are occurring in Africa, Australia, and China, with an estimated global oversupply of less than 100kt for 2024, down from over 200kt previously estimated [1][1][1] 4. **Demand Variability**: Demand for power grid, automotive, appliances, and shipbuilding remains strong, while property-related demand is weak with no signs of recovery [1][1][1] 5. **Infrastructure Funding**: Increased local government special bond issuance since June is expected to provide more funding for infrastructure projects in the second half of 2024 [1][1][1] 6. **Alumina Pricing Dynamics**: The alumina to aluminum ratio has increased from 2:1 to 2.5-2.8:1, indicating tighter alumina supply and higher prices for an extended period [1][1][1] 7. **Lithium Price Outlook**: The lithium price rally is expected to be short-lived, with a fair price range estimated at Rmb70-80k/t based on current supply-demand dynamics [1][1][1] Investment Recommendations - **Preferred Stocks**: Chalco (A/H), Hongqiao, Zijin (A/H), CMOC (H), and Zhaojin are recommended due to their favorable positions in the tightening supply environment [1][1][1] - **Market Capitalization and Liquidity**: The market caps of preferred stocks range from US$1.3 billion to US$56 billion, with varying average daily trading volumes [2][2][2] Additional Important Insights 1. **Maintenance Needs**: Increased maintenance is anticipated in the latter half of the year due to lack of maintenance in the first half [1][1][1] 2. **Restocking Demand**: Anticipated restocking demand before the October Golden Week and Chinese New Year may further tighten supply [1][1][1] 3. **Commodity Price Forecasts**: Price forecasts for various commodities, including aluminum and lithium, indicate a mixed outlook with some expected increases [6][6][6] Conclusion The Greater China Materials sector is experiencing significant supply constraints, particularly in bauxite and alumina, while demand remains mixed across different industries. Investment in select companies is recommended based on their positioning to benefit from these trends.

Financial Data and Key Metrics Changes - Cement demand is expected to decline by 8-10% year-over-year in 2024, with leading producers pushing for price hikes during the peak season due to better market discipline [2][3] - The new cement capacity limit swap regulation may help reduce excess production, as current cement production is approximately 2 billion tons against a government-approved clinker capacity of 1.8 billion tons [3] Business Line Data and Key Metrics Changes - Late-cycle building materials are facing growth challenges due to declining property starts and completions, leading to weakened demand [4] - Float glass demand remains weak, with order days at processing plants decreasing from 18.9 days in August 2023 to 9.6 days in August 2024, indicating continued downward pressure on prices [5] Market Data and Key Metrics Changes - The market for late-cycle building materials is expected to continue facing challenges, with leading producers becoming more cautious on sales policies and moving away from low-margin construction business [4] - High supply pressures in the float glass market are leading to loss-making conditions for producers reliant on natural gas, despite not being at the cash level [5] Company Strategy and Development Direction - Companies are emphasizing shareholder returns, with more industry leaders proposing interim dividends and higher payout ratios [4] - The industry is shifting focus away from low-margin to-B sales and construction business, which is expected to aid cash flow despite dragging sales [4] Management Comments on Operating Environment and Future Outlook - Management anticipates that the demand recovery is not imminent, and supply discipline will be the alternative strategy [2] - The outlook for the waterproofing segment remains bleak, with no expected turnaround in demand in the near term [5][15] Other Important Information - Price targets for various companies have been cut significantly, with Oriental Yuhong downgraded to equal-weight due to a lack of demand recovery in the waterproofing segment [5][15] - EPS estimates for several companies have been revised downward, reflecting a bearish outlook for the industry [13][15] Q&A Session Summary Question: What is the outlook for cement demand in 2024? - Cement demand is expected to decline by 8-10% year-over-year, with producers pushing for price hikes during the peak season [2] Question: How are companies responding to the current market conditions? - Companies are becoming more cautious with sales policies and are focusing on improving cash flow by moving away from low-margin businesses [4] Question: What are the implications of the new cement capacity limit swap regulation? - The regulation is expected to help reduce excess production by requiring cement lines operating above approved capacity to close or swap [3]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Property Market - **Date**: September 24, 2024 - **Analysts**: Morgan Stanley Asia Limited, Stephen Cheung, Patrick Jiang, Cara Zhu Core Insights and Arguments 1. **Monetary Policy Announcements**: The People's Bank of China (PBoC) announced several monetary policies aimed at supporting the property market, which slightly exceeded market expectations. These policies are expected to boost housing sales and inventory purchases in Q4, potentially leading to a softer decline in home prices [1][1][1] 2. **Policy Details**: - Existing mortgage rates will be lowered to levels close to new mortgage loans, effectively a ~50 basis points cut. - The minimum downpayment ratio for second homes will be reduced from 25% to 15%, aligning it with first homes. - PBoC's funding sharing for inventory purchases will increase from 60% to 100%. - Policy deadlines for operating loans and "16-measures" will be extended from the end of 2024 to the end of 2026. - A feasibility study is being conducted on using the relending facility to buy idle land from developers [1][1][1] 3. **Impact on Local Governments**: The 100% relending backup may incentivize local governments to accelerate the purchase of completed inventory, although the total funding size may be limited to RMB 300 billion compared to RMB 500 billion previously [1][1][1] 4. **Second-Home Downpayment Ratio**: The reduction in the second-home downpayment ratio may boost property sales in Q4, but the impact is expected to be short-lived due to low consumer appetite for additional leverage in a weak macroeconomic environment [1][1][1] 5. **Mortgage Rate Cut Benefits**: PBoC estimates that the mortgage rate cut will help 50 million households save approximately RMB 150 billion in interest expenses annually, which may benefit mall operators like CR Mixc, CR Land, Longfor, and Seazen due to a softer downtrend in retail sales [1][1][1] Company-Specific Insights Longfor Group Holdings Ltd. (0960.HK) - **2024e NAV**: HK$16.04/share, comprising HK$16.49 of development properties, HK$18.80 of investment properties, and HK$19.25 of net debt. - **Discount Applied**: 40% based on a developers' scorecard [2][2][2] Seazen Group Ltd. (1030.HK) - **2024e NAV**: HK$2.72/share, with a similar discount applied based on a developers' scorecard [6][6][6] China Resources Land Ltd. (1109.HK) - **2024e NAV**: HK$46.12/share, with a 35% discount based on a developers' scorecard [9][9][9] China Resources Mixc Lifestyle Services (1209.HK) - **Valuation Methodology**: Based on a target multiple derived from an industry scorecard, scoring 91/100, the highest in coverage [12][12][12] Risks Identified Upside Risks - Stronger-than-expected contract sales [3][7][10] - Faster-than-expected opening of new shopping malls [3][7][10] Downside Risks - Weaker-than-expected contract sales [4][8][11] - Slower-than-expected opening of new shopping malls [4][8][11] Conclusion The recent monetary policy changes by the PBoC are expected to provide a temporary boost to the Chinese property market, particularly in Q4. However, the overall sentiment remains cautious due to the weak macroeconomic backdrop and consumer reluctance to increase leverage. The analysis of specific companies within the sector indicates varying levels of NAV and risk profiles, with potential upside and downside risks identified for each.

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Summary of Conference Call Transcript Industry or Company Involved - The discussion revolves around the collagen industry, specifically focusing on collagen technology and its historical development [1] Core Points and Arguments - The current analysis is a continuation of a previous discussion on collagen technology structure, providing a historical review of the topic [1] - The motivation for this theme arose during the recording process, where many investors expressed interest in understanding the evolution of collagen technology [1] Other Important but Possibly Overlooked Content - The emphasis on investor interest indicates a growing market awareness and potential investment opportunities within the collagen sector [1]

Summary of Conference Call Company or Industry Involved - The document does not specify a particular company or industry Core Points and Arguments - No core points or arguments are provided in the document Other Important but Possibly Overlooked Content - The document contains only a brief acknowledgment without any substantial information or data Since the document lacks detailed content, no further analysis or key points can be extracted.

Summary of Conference Call Transcript Company or Industry Involved - The document does not specify a particular company or industry, only contains a vague phrase "Let's get closer. Closer." which does not provide any actionable insights or context. Core Points and Arguments - No core points or arguments are presented in the document, as it lacks substantive content. Other Important but Possibly Overlooked Content - The document does not contain any numerical data, percentages, or relevant financial information that could be analyzed or summarized. Overall, the document does not provide any meaningful information regarding a specific company or industry, nor does it present any data or insights that can be summarized.

Financial Data and Key Indicators Changes - The company believes that the worst period for VLCC freight rates has passed, and future rebounds are merely a matter of timing [2][3] - Recent data indicates that the ship price has increased by 0.06 points this week, suggesting a positive trend in the market [21] Business Line Data and Key Indicators Changes - The order volume for China Shipbuilding has improved significantly, with current orders at 90% of those of China Heavy Industry, while China Shipbuilding's orders are at 60-70% [5] - The net profit margin for Yangtze River's mid-term report reached 23%, indicating strong performance compared to its peers [23][24] Market Data and Key Indicators Changes - VLCC rates have seen a significant increase of 60-62%, with the TD3C rate rising to approximately $34,600 [32] - The shipping market is experiencing a seasonal adjustment, with August typically being the weakest month for freight rates [36][37] Company Strategy and Development Direction and Industry Competition - The company continues to recommend investments in the shipbuilding sector, particularly in China Heavy Industry and related defense sectors, due to their undervalued status [25][31] - The company emphasizes the importance of understanding the long-term trends in the shipping market, particularly in relation to oil demand and supply dynamics [42][46] Management's Comments on Operating Environment and Future Outlook - Management believes that the recent adjustments in the shipping market are primarily seasonal and do not reflect a fundamental decline in demand [49][50] - The company anticipates that the fourth quarter will see a recovery in freight rates, driven by seasonal demand and potential geopolitical factors affecting oil supply [55][57] Other Important Information - The recent orders from China Heavy Industry for environmentally friendly vessels amount to 6.638 billion RMB, indicating a shift towards modernization in the fleet [27][28] - The company highlights the importance of maintaining a close relationship with major shareholders to navigate market fluctuations effectively [15][16] Q&A Session Summary Question: What is the outlook for VLCC freight rates? - Management believes that the worst of the seasonal downturn has passed, and a rebound in rates is expected as the market transitions out of the summer months [32][49] Question: How does the recent shareholder reduction impact the company? - The company asserts that while shareholder reductions may affect market sentiment, they do not alter the overall upward trend in the shipping sector [72][73] Question: What are the implications of geopolitical factors on oil supply? - Geopolitical tensions, particularly regarding Iran, could lead to supply disruptions, which may positively impact freight rates due to increased demand for shipping services [58][60]