China Resources Building Materials: Initiate With a No-Moat Rating; Shares Fairly Valued

We initiate China Resources Building Materials with an HKD 1.70 per share fair value estimate, a no-moat rating, a Standard Capital Allocation Rating, and a Very High Morningstar Uncertainty Rating. CRBM was established by China Resources Group in 2003 and mainly engages in the production of cement, clinker, concrete, and aggregates. It has built a strong representation in Southern China and leverages the Xijiang River to transport its products to customers in coastal areas, which results in cost savings. As China’s cement industry has been hampered by sluggish home demand and excess supply, we expect CRBM’s selling prices of cement and clinker to keep declining till 2025, which will weigh on its margins. However, we see faster expansion of the more profitable aggregates business to lead to a favorable earnings mix shift over time. As such, we factor in a 2% and 16% 2023-28 compound annual growth rate for CRBM’s revenue and operating profit, respectively. We view CRBM’s shares as fairly priced and prefer Anhui Conch Cement’s H-shares, given its more resilient profitability and attractive valuation.