Supply Shortage Crisis...Cement Stocks with Rising Prices

Average Stock Price Up 55.7% Since Early Year
Optimistic Earnings Amid Visible Price Increase

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] Cement manufacturers' stock prices continue to rise amid expectations of improved earnings due to price hikes and cost reductions. There is also anticipation of valuation expansion depending on whether earnings improve from the increased selling prices.

According to the Korea Exchange on the 9th, major cement companies such as Seongsin Yanghoe, Ssangyong C&E, Goryeo Cement, Sampyo Cement, Hanil Cement, and Asia Cement have seen their stock prices rise by an average of 55.7% since the beginning of the year until the previous day. Asia Cement's stock price has nearly doubled this year, rising from the 70,000 KRW range at the start of the year to now approaching the 140,000 KRW range. Seongsin Yanghoe's stock price jumped nearly 80% from the 7,000 KRW range. Ssangyong C&E, Goryeo Cement, Sampyo Cement, and Hanil Cement also saw their stock prices increase by 20-60% this year. During the same period, the KOSPI and KOSDAQ indices rose by only 13.0% and 1.8%, respectively.

The rise of the cement sector is thanks to a supply shortage caused by a rebound in the construction industry. Due to government policies to expand housing supply, demand is increasing faster than shipments can keep up. Kim Seryeon, a researcher at Ebest Investment & Securities, said, "Cement is a representative building material currently experiencing a supply-demand crisis. Construction starts have increased, but shipments have not risen accordingly since last year. As construction starts are expected to increase further this year, this supply-demand imbalance raises the possibility of cement price hikes that have been suppressed for several years."

The last time the cement industry raised prices, which they have been requesting from ready-mix concrete companies and construction firms since last year, was in 2014. Currently, cement prices vary by company but average between 60,000 and 63,000 KRW per ton. If prices are set at 80,000 KRW or more per ton, as proposed by the cement industry, sales could increase by more than 25%.

An important investment point is that the industry is defending profit margins despite the sharp rise in the main raw material, bituminous coal prices, through investments in eco-friendly facilities. Currently, cement companies are increasing the proportion of recycled waste materials such as used tires in the cement manufacturing process to defend profit margins against rising raw material costs.

With increased demand and visible price hikes, the earnings outlook for the cement sector is also bright. In particular, despite the current high stock price burden, if the price hikes are reflected in earnings, stock prices could gain further momentum. According to financial information provider FnGuide, Ssangyong C&E's annual operating profit this year is estimated to increase by 8.6% to 271.7 billion KRW compared to last year. Seongsin Yanghoe is expected to see a 17.9% increase to 25 billion KRW, while Hanil Cement and Asia Cement are forecasted to achieve strong performances with increases of 34.8% and 12.9%, reaching 179 billion KRW and 85 billion KRW, respectively.