refer to important disclosures at the end of this report
TRANSCRIPT
ed-JS/ sa-CS / DL
Asian Insights SparX
Environmental, Social and Governance Refer to important disclosures at the end of this report
DBS Group Research . Equity 16 Mar 2021
Blending carbon-neutral cement • Low carbon and climate awareness initiatives of China-based
producers (55% of global output of cement) are key to achieve
global carbon neutrality • Additional R&D by the industry should lead to lower opex per
carbon captured from 2025 onwards (based on our optimistic
scenario of less than US$25/tonCO2). Moreover, we believe
the carbon pricing mechanism is earnings neutral for China
producers, while development of an emissions trading system
is longer term positive as the market should be receptive and
willing to pay a premium for “GREEN” labels • From an ESG perspective, our stock selection relies on
management’s commitment and viable strategies to adapt to
changes, and transition risk. Our preferred pick is Anhui
Conch (914 HK).
HSI: 28,834
Analyst
Duncan Chan +852 3668 4181 [email protected]
Recommendation & valuation
Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”)
Pr ice
HK$
Target
Pr ice
HK$ Rec
Mkt
Cap
US$m
FY21F
PE
x
Anhui Conch (914 HK) 51.95 60.00 Buy 41,830 6.6
CR Cement (1313 HK) 8.92 10.50 Hold 8,021 6.6
CNBM (3323 HK) 11.16 14.00 Buy 11,963 5.1
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Table of Contents
Investment summary 3
2030 or 2060 – a China-centric story 4
Possible initiatives to address transition risk 5
Progress in climate resilience and disclosure 9
Our studies on climate financial impact 11
Our stock picks 13
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Investment summary
This is our second report of a series of DBS’s Climate Change report with a
focus on the cement industry. To put this in perspective, cement is a key
material to produce concrete for use in the construction sector. Cement
production has remained relatively flat over the past five years. According to
IEA’s forecast, global cement demand is projected to grow at 0.4% CAGR to
4.7bn tons during 2020-2050. The increase is largely from the rapidly
growing and urbanising economies of China, which constitutes 55% of
global production, followed by India and Africa, as demand from these two
economies is expected to triple over the next three decades. According to
IEA, cement production generates around 2.2Gt of carbon dioxide (CO2) per
annum, accounting for about 7% of industrial energy consumption and 26%
of direct industrial CO2 emissions.
We acknowledge a common goal to accelerate the change towards low-
carbon energy systems to limit the rise in global temperatures to well below
2ºC (ideal is 1.5ºC). There are at least three decarbonisation routes (i.e.
carbon capture and storage, alternative fuel consumption, and demand
management) for the cement industry to achieve net-zero CO2 emissions,
requiring closer collaboration among producers, consumers, regulators and
stakeholders. Such a carbon neutral vision should not be impaired despite
the economic disruption arising from the Covid-19 outbreak.
The 2018 IEA and Cement Sustainability Initiative (CSI) Technology Roadmap
estimates that 3% of CO2 emissions reductions from today until 2050 will be
achieved by thermal energy efficiency improvements, while 48% will be
driven by the deployment of carbon capture and storage (CCS) technology.
Research by Chatham House suggests that innovations in low-clinker and
novel cement could achieve emissions reductions of more than 90%
compared with traditional Portland Cement17.
After all, we believe that companies that are not developing new
technologies face risks of being left behind. R&D and deployment of low-
carbon technologies is has become imperative.
Riding on the declining cost of new technology development, we believe
the theoretical operating cost of adopting carbon capture technology can
drop by less than US$25/tonCO2 by 2025, representing largely >3% of
expense for the end customer. Apart from that, we expect carbon
emissions trading in Europe and nationwide roll-out in China would
benefit cement producers in terms of product (GREEN) differentiation and
monetisation, enabling carbon reduction targets to be achieved.
In this report, we also highlight research from Transition Pathway Initiative
(TPI) – a robust approach in climate change research based on two-
dimensional analysis. Based on TPI research 2019, Chinese producers are
ranked low in both emission intensity and management quality in the past
three years (2017-2019). Our qualitative assessment based on 12 listed
China cement producers demonstrates improvement potential, in terms
of both commitment in climate risk management and proactiveness in
international partnership initiatives.
Our basis for cement producers are: (1) producers have to possess clear
vision and targets in reduction of emission, and sound business strategy
to mitigate transition risk, and (2) transparent disclosure (highest
standard) and efforts made to improve disclosure for regulator and
stakeholders to monitor that production processes to be pollutant-free.
As such, we identify Anhui Conch (914 HK), China Resources Cement
(1313 HK) as two emerging industry role models.
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2030 or 2060 – a China-centric story
Number crunch: 7%, 26%, 55%
▪ Background: 7% of industrial energy consumption, 26% of direct
industrial CO2 emissions came from cement production
▪ China (55% of global cement production) to determine overall
reduction progress
▪ Direct CO2 intensity is required to decline each year to meet carbon
neutral target, versus +0.5% in 2014-2018
To provide some colour, CO2 emissions are generated both from the
production of clinker (representing 50% of CO2 emissions from cement
production), fuel combustion (40% of total) and the balance of 10% from
the remaining production process. In this report, we will provide a bigger
picture on this issue and our major data sources are from International
Energy Agency (IEA) and Transition Pathway Initiative (TPI).
Cement production and consumption are driven by rising population,
urbanisation and infrastructure development. Regions such as China and
the Middle East have excess cement production capacity with cement
production intensity well above global levels (1818 kilogrammes (kg) of
cement produced per capita in China and 827kg of cement produced per
capita in the Middle East in 2014 compared to 575kg of cement produced
per capita globally). Other countries, such as India, are set to increase
their domestic cement production capacities to fulfil their infrastructure
development needs, aligning with global levels by 2050. The global
average cement demand per capita is expected to level out at around
485kg over the same period.
Global cement demand intensity and population and cement
production intensity
Source: International Energy Agency, Cement Sustainability Initiative
Most cement production capacities is expected to be in China and other
developing countries such as India, Indonesia and Brazil. However,
according to the latest data published by IEA (June 2020), the direct CO2
intensity of cement production has increased by 0.5% per year during
2014-2018. That said, a 0.8% decline is required to get on track with the
carbon neutral target by 2030.
2010 2020 2030 2040 2050 2060
0
500
1,000
1,500
2,000
0
500
1,000
1,500
2,000
2,500
3,000
2014 2020 2025 2030 2035 2040 2045 2050
Non-urban population Urban population
World demand intensity INDIA - production intensity
MIDDLE EAST - production intensity CHINA - production intensity
Population (mn) Cement internsity (kg cement/capita)
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As China accounts for 55% of cement production, the cement industry in
China would determine the overall progress of global greenhouse gas
emissions and carbon neutrality. According to the China government’s
original plan to reach the targets set in the 2030 Paris Agreement
Nationally Determined Contribution (NDC), it has explicitly set an
ambitious target to reduce the thermal energy intensity of clinker
production to 3.07 GJ/t of clinker on average by 2020, as part of the 13th
Five-Year Plan (2016-20). This represents 1% annual reduction in the
specific thermal energy demand of clinker from 2014. However, the
Chinese government had abruptly suspended approvals for subsidies on
solar projects in 2018 and issued new policies to reduce solar and wind
subsidies in 2019. The government has also lifted a two-year ban on new
coal-fired power plant construction.
However, by superseding the 2020 pledge and 2030 NDC commitment,
the China government has recently proposed to strengthen its 2030
climate target, peak emissions before 2030 and to meet carbon neutrality
by 2060. We believe the China government has demonstrated its concern
on this global issue and is taking the appropriate steps. THE new timeline
is realistic and marks an important milestone in the next decade for the
industry.
Possible initiatives to address transition risk
Before we attempt to address the transition and financing risks arising
from being a low-carbon economy, we have listed three major initiatives
for industry participants to think about.
A better way of making cement
▪ Carbon capture and storage (technology deployment)
▪ Fuel consumption (renewables)
▪ Demand management (lower clinker usage)
Carbon capture and storage technology (near zero-carbon solution)
Carbon capture technology could capture >90% of carbon produced
during the clinker manufacturing process, making this one of the most
efficient wats to reduce emissions. In more technical terms, about half
(50%) of the emissions from cement manufacturing is a result of heating
limestone. When a cement rotary kiln is heated to around 900°C,
limestone (calcium carbonate - CaCO3) starts to decompose into lime
(CaO), and releases carbon dioxide (CO2) as a waste product. This is
known as limestone calcination and this single chemical process accounts
for around 4% of the world’s total emissions.
A further 40% of cement-related emissions comes from burning fossil
fuels (coal, coke or natural gas) to generate the heat required to make
clinker in the rotary kiln. The remaining 10% of emissions relate to the
electricity used to grind and transport materials. Facilities using chemical
absorption could achieve closer to full capture rates. Meanwhile, carbon
capture technologies in the cement industry has yet to be commercially
available.
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Among the leading global cement producers, HeidelbergCement leads in
terms of carbon capture, utilisation and sequestration (CCU/S).
LafarageHolcim is working on more than twenty CCU/S pilot projects
across 270 sites to be at the forefront of low-carbon construction. For
example, CO2 from Westküste100, LafargeHolcim Lägerdorf, Germany will
be transformed into a synthetic fuel that can be used at nearby airports.
Separately, Mexican cement giant, Cemex, has disclosed plans to work
with Carbon Clean to develop carbon-capture technology in an integrated
modular system of rotating packed beds which will cost just US$30 a ton
of CO2 captured by 2021.
We are now seeing China peers taking similar steps. Anhui-based Conch
Cement has successfully upgraded the effectiveness of carbon captured
to full rate (2018) from capturing 15% of emissions in 2014.
Taiwan Cement (TCC) has taken the lead to build its first CO2 capture test
line with the Hoping Plant, by using Calcium-Looping technology. This
involves capturing the emissions from a cement plant and then securing
the CO2 component underground. The appeal of carbon capture and
storage (CCS) is that it deals with emissions from the calcination of
limestone. Mineral carbonation is more practical and likely to be more
cost-effective than CCS. There are potential cost savings from the
electrification of cement production to reduce emissions by using low-
emissions technology. The Cement Sustainability Initiative found that by
2050, CCS could reduce the sector’s emissions by a further 20%,
contributing to overall reduction by about a third.
Major development of carbon capture technology in China
Company Method Effectiveness Comments
Anhui Conch Co-development
with Dalian
University
Commenced in Oct-18 in
Baimashan Plant,
30,000tons of food grade,
and 20,000tons of industrial
grade of CO2 with purity of
99.99%
-
CR Cement Details not available
CNBM Details not available
Taiwan Cement Calcium looping Carbon capture of 450,000
tons p.a. in 2025, to reach
economies of scale in 2030
Microalgae
sequestration
can produce
astaxanthin at
a lower cost
Asia Cement Details not available
Source: Company, DBS Bank (Hong Kong) Limited (“DBS HK”)
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Fuel consumption
Along with the lower cost options available for energy inputs namely
biomass and alternative fuels (i.e. municipal and industrial waste),
consumption demand for traditional fossil fuels for cement production
would gradually drop. According to the 2018 Cement Industry GNR data,
the proportion of alternative fuels used is now 9.5x greater than in 1990.
Fossil fuel substitution, 1990-2018
Source: GNR – Global Cement and Concrete Association in Numbers
Beyong Zero Emissions’ (BZE) study shows that a transition to 100%
renewables would not only reduce carbon emissions, it is also less
hazardous to health, consumes less water than coal-fired power plants
and provides at least as many jobs as fossil-fuel enterprises. Alternative
fuels from wastes is another way to decarbonise at a lower cost. Overall,
we expect cement producers to switch to less carbon intensive biomass
and waste materials for use in cement kilns.
In China, cement plants are equipped with residual heat recovery systems
for energy conservation. All clinker production lines are required to use
advanced New Suspension Preheater (NSP) technology. This technology
can help to achieve decarbonisation. The heat generated from the clinker
production process is captured and recycled through the heat recovery
system to lower overall coal energy consumption. Using NSP is 7%-15%
more energy efficient than traditional suspension pre-heater systems.
Fuel diversity progress in China
Company Unit coal
consumed per
ton clinker
% of clean
energy
sources* waste
heat recovery
Comments
Anhui Conch 142.9kg/t clinker 55% 51m kWh clean
energy or 0.3% of
total energy
consumed
CR Cement 145.2kg/t clinker 32% -
CNBM 133.7kg/t
clinker**
28% -
Taiwan
Cement
NA 21% 10% of target
biomass by 2025
from 8% of
alternative fuel used
in 2019
Asia Cement 139.1kg/t clinker 23% -
*Include waste heat recovery generated
**Calculated based on the company’s coal energy used and clinker capacity
Source: Company, DBS HK
0%
20%
40%
60%
80%
100%
1990 2000 2010 2018
Fossil fuels Biomass Alternative fuels
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Demand management
Clinker is the main ingredient in cement and is directly responsible for
CO2 emissions due to the combustion of fuels and decomposition of
limestone. Therefore, lowering the clinker-to-cement ratio through use of
other blended materials would reduce pollutant emissions. In China, the
clinker-to-cement ratio increased at an average of 1.6% per year from
2014-2018, to 0.7 in 2018. Although China has one of the lowest ratios
globally, the ratio has risen from 0.57 to 0.6 during 2014-2017, then to
0.64 in 2018. The increase was due to two reasons: (1) excess capacity
reduces incentive for blending, and (2) China has been phasing out lower
grade (lower clinker ratio) cement products to address the excess
capacity issue.
Clinker content in cement for major producers in China
Company Clinker-cement
ratio*
Comments
Anhui Conch 0.70** Almost the lowest among peers
CR Cement 0.80 Below average
CNBM 0.85 -
Taiwan Cement 0.83 About average and it was lowered
from 0.85 during 2016 and 2108
Asia Cement 0.95 -
*Note: the lower the clinker content in cement the better
**Calculated based on the company’s disclosed capacity
Source: DBS HK
The difficulties are to find scalable and sustainable alternatives, for
example, Europe, lacking fly ash and slag. On the other hand, there are
more successful innovations such as geopolymer cement. Geopolymer
cement is a well-established class of cement that can be produced with
much lower greenhouse gas emissions (potentially zero) using two
materials: fly ash (waste ash produced in coal-fired power stations) and
ground granulated blast-furnace slag (GGBS, a by-product of iron blast-
furnaces).
There are various ways to obtain blended cement for example, mixing
clinker with substitute industrial waste products such as (1) fly ash, which
is produced when coal is burnt, (2) granulated blast-furnace slag (GBFS),
produced in iron and steel making, (3) calcined clay in combination with
limestone, using alternatives such as magnesium silicate clinker or timber.
For now, development of low-carbon products is still at a very early stage,
with Europe taking the lead. The most important advantage is that calcine
limestone is not required. In fact, making geopolymer cement does not
generate any carbon dioxide or other greenhouse gases. Therefore, in
one stroke, this removes more than 50% of cement-related emissions.
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Progress in climate resilience and disclosure
“Climate resilience is the ability to anticipate, prepare for, and
respond to hazardous events, trends, or disturbances related to
climate. Improving climate resilience involves assessing how climate
change will create new, or alter current, climate-related risks, and
taking steps to better cope with these risks.” – Center for Climate and
Energy Solutions
In 2015, the World Business Council for Sustainable Development
(WBCSD) coordinated the Low Carbon Technology Partnerships Initiative
(LCTPi) with 18 cement companies, announcing a target to cut emissions
by 20-25% by 2030. Included in this list were UltraTech Cement, CRH,
Cemex, and Shree Cement, which are among the largest listed cement
companies in the world. However, most members have yet to set their
2030 targets. A quantifiable emission reduction target is essential in
guiding companies onto sustainable pathways.
LCPTi Members and Targets
2030 Target SBT Committed 2020-2025 Target Not Disclosed/ No
Target
HeidelbergCement
(acquired Italcementi
Group in 2016)
LafargeHolcim
Siam Cement
Cemex
Dalmia
Shree Cement
CRH
Argos
InterCement
UltraTech
SECIL
Votorantim
GCC
Titan
CNBM
CRCH
West China
Cement
Source: Decarbonising Cement: The Role of Institutional Investors (2019)
Metrics and disclosure of targets
Transition Pathway Initiative (TPI) is a robust approach in climate change
research and assesses companies on two dimensions: (1) carbon
performance and (2) management quality. According to TPI’s data, the
manufacture of one ton of cement released 0.70 tons of carbon dioxide
emissions for East Asia & Pacific region (China: 0.82) in 2019, down from
2017’s level of 0.76 (China: 0.86).
On carbon intensity (carbon performance), there are visible improvements
since 2018 and a number of cement companies are aligned with the Paris
Pledges (22% out of 22 companies) while the rest are either not aligned or
have made no disclosures. The results are consistently weak for China
producers (3 out of 5 attained Level 1 – awareness).
Overall, we believe it is important for cement producers to disclose their
emissions intensity according to the Cement Sustainability Initiative. The
highest industry standard had recommended to set science-based targets
(SBTs) based on a 2030 timeline. However, only a handful of companies –
Heidelberg Cement and IMERYS – have set targets.
On management quality, we expanded our study to 12 Chinese companies
located in Greater China region, versus TPI’s assessment on 5 Chinese
cement companies. See Appendix: Results of our assessment on
management quality.
Our findings: (1) it is important to nominate a board member or committee
with explicit responsibility for climate change, (2) lack of clear policy in place
for action on climate change, (3) A-share companies (Shanghai or Shenzhen
listings) are rated at the minimum Level 1 grade as their disclosure in
general does not meet the format as per Environmental Social Governance
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/Climate report such as lacking emissions data disclosure and statement on
explicit steps to tackle climate issues etc, (4) 7 companies (58%) can be
upgraded to Level 3 and 4, considering their commitment on tackling
climate issues, potential improvement in data transparency, and
proactiveness of participating in international initiatives via partnerships. In view of those companies we have come across that are in the process
of formulating new ESG policies to comply with the national standard, we
believe there is good potential for these Chinese companies to receive a
better rating and drive an improvement in the sector.
Our assessment of management quality of major China cement
companies
*Note: the higher number of ticks represent the better management quality
Source: DBS HK
Regulations and investor expectations
Last but not least, regulators have an important role to drive changes to
address the climate change issue. These include (1) regulations to facilitate
technology uptake, (2) shift from prescriptive to performance-based design
standards within building codes, (3) tightening building regulations and
ambitions for low-carbon cities, (4) develop infrastructure for deployment of
carbon capture pipeline networks, (5) stimulus for renewable power
generation to ensure wider penetration of blended cements, and (6)
standardisation of alternative binding materials for cements. In all,
governments should be responsible for setting a level playing field for all
industry participants. Moreover, Climate Action 100+ was launched in late 2017 by investors around
the world to ensure that the world’s largest corporate greenhouse gas
emitters react to climate change issues. To date, more than 450 investors with
more than US$40trn in assets under management have joined the action,
clearly demonstrating a growing demand for more climate-related financial
information by investors. Regulators in Asia are also responding to requests
from investors and are increasing and tightening financial disclosure
requirements. Thus, we believe this should help investors to better assess
climate change risk. The Investor Decarbonization Initiative (IDI), coordinated by Share Action and
representing US$1.7trn of assets, calls on cement companies to set science-
based targets (SBTs). In June 2019, the Institutional Investors Group on
Climate Change (IIGCC) outlined investor expectations for net-zero emissions
targets in the cement sector, and to vote against climate change laggards.
Investors are encouraged not to participate in new bond or equity issuances
by climate change laggards, thus incentivising these companies to act. In the
meantime, stock exchanges including HKEx are determined to amend the
ESG Reporting Guide, requiring disclosure of significant climate-related issues.
0
2
4
6
8
10
12
14
16
Conch CRC CNBM Asia Cement Taiwan
Cement
# ticks
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Our studies on climate financial impact
Impact summaries:
▪ Opex concerns
▪ Carbon price and trade
Declining cost from using new carbon capture technologies
The 2018 IEA and Cement Sustainability Initiative (CSI) Technology
Roadmap estimates that 3% of CO2 emission reductions from now until
2050 will be achieved by thermal energy efficiency improvements, while
48% will be driven by deployment of carbon capture and storage (CCS)
technologies. Cement Sustainability Initiative (CSI) is a global effort by 24
major cement producers with operations in more than 100 countries in
the pursuit of sustainable development.
Leading companies have realised the importance to decarbonise and are
setting targets to satisfy society and investors alike. Having committed to
transition their portfolios to net zero emissions by 2050, the Church
Commissioners for England expect to see ambitious targets consistent
with the goals of the Paris Agreement across the industrial sectors when
making investment decisions.
In the meantime, the mass deployment of carbon capture technology is
challenging. Operating cost of carbon capture technology is inversely
correlated to the concentration of CO2 in exhaust gas streams. Also, the
costs of transport and storage for CO2 captured from cement plants is
significantly higher than steel and petrochemical plants. For example,
oxyfuel plant costs 63% higher to build and 42% higher to operate given
higher electricity demand consumed.
Globally, the industry had earlier conservatively projected operating cost
for adopting carbon capture technology to be US$100 per ton.
Considering the limited impact on end consumer prices, costs are likely to
be readily absorbed and passed through. For example, a US$500k house
would cost US$15k more than before or c.3% for the end consumer. But
the situation is different in China, as this additional opex as a percentage
of the total would represent a huge portion for most China producers. As
such, new research and development has brought down opex to
US$30/ton. On an optimistic scenario, assuming a cost benefit (from
development of new technology) of 5% a year as proposed by Climate
Technology Centre & Network, opex could further reduce to below
US$25/ton CO2 captured.
In short, we believe the declining cost of installment and operation
provides better incentives for Chinese companies to adopt a cleaner
method of production. We are hopeful that companies mindful of climate
change would become better amid the government’s push towards
decarbonisation. This would drive sectoral improvements ahead.
Carbon price and trade
In the European Union, the emissions trading scheme (EU ETS), is a key
tool for reducing greenhouse gas emissions, covering around 45% of the
EU’s emissions. The cement industry is deemed as a sector exposed to a
risk of carbon leakage by the European Commission. This means there is
a risk that businesses could transfer production to countries with less
stringent emissions regulation and export the finished products back into
the European Union13. Sectors facing carbon leakage are allocated a
higher share of CO2 allowances, and in the first three phases of the EU
ETS, cement companies were allocated an excess of CO2 allowances
compared to their emissions, allowing them to trade their allowances with
other industrial emitters. Phase 4 of the EU ETS begins in 2021.
The objective of this phase is to be more flexible in adjusting allowances
and align them better with actual production. This could remove a
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potential revenue stream for companies that previously sold their excess
allowances, and introduce a cost if companies are unable to adjust their
emissions quickly enough. According to industry estimates, cement prices
would have to increase by 4-5% to compensate for the additional cost,
but it could still have negative EBITDA impact of 1-5% (based on 2020
financials) for European cement producers.
The size of the carbon market remains small. However, as demand grows,
we would expect prices to do the same. To illustrate, the price of an
allowance in the EU ETS is around US$27 per tCO2 e, while the High-Level
Commission on Carbon Prices has stated that current prices should be
US$40–80/tCO2 e worldwide in order to meet the Paris Agreement goals.
The inherent investment cost implies an explicit or implicit carbon price of
roughly US$100 per ton of CO2 (as benchmark opex cost in deploying
CCS).
A case study in Guangdong, China. Back in November 2011, the National
Development and Reform Commission determined that the first pilot
carbon emission trading should be launched in seven regions of Beijing,
Tianjin, Shanghai, Chongqing, Hubei, Guangdong and Shenzhen.
Guangdong officially launched carbon emissions trading on 19 December
2013. According to the Bulletin on the State of the Ecological Environment
in Guangdong Province (2019年广东省生态环境状况公报), Guangdong’s
carbon market had a cumulative transaction quota of 139 m tons, with a
total transaction value of RMB2,715 m, ranking this market the largest in
China.
Guangdong uses carbon trading quota auction revenue to establish a
"low-carbon industry development base." The fund uses a public-private
partnership (PPP) model to drive private capital with government
investment. We note that the innovation of carbon financial derivative
products, including carbon trading legal person account overdrafts and
carbon emission mortgage financing to assist small and medium-sized
enterprises, would help in solving financing issues relating to emissions
reduction.
The media has reported that Fujian, Hubei and Chongqing would follow
suit in promoting the development of a GREEN capital market. We believe
this method has advantage by combining clean in finance as solution for
the carbon reduction and climate issue. Considering the initiatives that
companies have adopted to go “GREEN”, we expect the ETS to provide a
platform for producers to net sell their quota. In distant future, we
visualise that the market is not only eligible to trade the emission quota,
but also the replacement capacity quota. That could provide a new source
of monetisation potential for efficient producer. This should provide a
strong support for carbon neutrality progress in the industry, in our view.
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Our stock picks
Focus points:
▪ Priority in transition risk management is essential
▪ Our stock selection
▪ Anhui Conch and CR Cement are potential role models in climate
change risk management
By default, climate change is the defining issue arising from shifting
weather patterns. This has widespread impact ranging from threatening
food production, to rising sea levels increasing the risk of catastrophic
flooding at an unprecedented scale. We are convinced the operating
environment for cement companies is gradually changing due to rising
awareness on climate issues.
After reviewing the assessment criteria on management quality and
evaluation of financial risk, we identify potential industry leaders or role
models that should be able to successfully address the climate change
impact. This is based on the following criteria:
(1) Possess clear vision or stated targets in carbon reduction
progress, supported by sound business strategy to mitigate
transition risk;
(2) Transparent disclosure (to meet TPI Level 4) or management has
made dedicated efforts on disclosure improvements; and
(3) Responsiveness to regulators and stakeholders on policies and
market changes.
Research from the Institute of International Finance showed that ESG
equity indices outperformed the market since the end of 2015. These
provide strong evidence of a positive correlation between ESG and
company performance and share price. As a result, we like:
Anhui Conch Cement (914 HK, BUY, TP HK$60.0)
• Strong management and ability to raise data disclosure
transparency
• Possible shorter technology learning curve in emissions reduction
• Awareness in using alternative fuels and materials in cement
production
We downgrade China Resources Cement to HOLD from BUY, in our latest
China material sector outlook report issued on 2 March 2021, considering
the near term margin pressure. Despite so, we believe China Resources
Cement is one of the potential role models, because:
China Resources Cement (1313 HK, HOLD, TP HK$10.5)
• Committed to better climate-data disclosure
• Various initiatives to develop new production methods to adapt
to changes from transition to low-emissions economy
• One of the net sellers of carbon quota in the Guangdong market
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STOCK PICKS
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Anhui Conch (914 HK/600585 CH)
H - BUY Last Traded Price (15 Mar 2021): HK$51.95 (HSI : 28,834) Price Target 12-mth: HK$60.00 (15.5% upside)
A - HOLD Last Traded Price (15 Mar 2021): RMB53.85(CSI300 Index : 5,036) Price Target 12-mth: RMB55.00 (2.1% upside) Analyst
Duncan Chan+852 36684178, [email protected]
Forecasts and Valuation (H Shares)
FY Dec (RMBm) 2019A 2020F 2021F 2022F Turnover 157,030 165,045 170,844 173,932 EBITDA 50,313 51,306 54,414 55,713 Pre-tax Profit 44,596 44,806 47,585 48,604 Net Profit 33,630 33,788 34,899 35,646 Net Pft (Pre Ex) (core profit) 33,630 33,788 34,899 35,646 Net Profit Gth (Pre-ex) (%) 12.6 0.5 3.3 2.1 EPS (RMB) 6.35 6.38 6.59 6.73 EPS (HK$) 7.57 7.60 7.85 8.02 EPS Gth (%) 12.6 0.5 3.3 2.1 Diluted EPS (HK$) 7.57 7.60 7.85 8.02 DPS (HK$) 2.39 2.40 3.14 3.21 BV Per Share (HK$) 30.88 36.09 40.80 45.61 PE (X) 6.9 6.8 6.6 6.5 P/Cash Flow (X) 5.7 6.7 5.6 5.4 P/Free CF (X) 7.1 9.4 7.4 7.1 EV/EBITDA (X) 3.8 3.5 3.0 2.6 Net Div Yield (%) 4.6 4.6 6.0 6.2 P/Book Value (X) 1.7 1.4 1.3 1.1 Net Debt/Equity (X) CASH CASH CASH CASH ROAE(%) 26.9 22.7 20.4 18.6 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 6.56 6.65 6.57 Other Broker Recs: B:29 S:1 H:1
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters
Click here to the Insights Direct
Strong management and technological innovations for low-carbon
development. As an inherent driving force behind sustainable
development, the company has actively explored innovative solutions
in energy conservation, emissions reduction, low-carbon development
and environmental protection as long-term development strategies. It
shares its experience in energy conservation and emissions reduction
with industry peers in global forums organised by the United Nations
and the World Cement Association. Awareness in using alternative resources. Conch took the lead in
promoting residual heat power generation technology in China. Also,
six subsidiaries have used more wind/ solar power in 2019. Moreover,
Conch use mineral powder, fly ash, slag, coal gangue and other
industrial waste to lower clinker consumption. Its clinker-cement ratio
become the lowest among peers. These initiatives reduced total coal
electricity consumption equivalent to reducing CO2 by 14.5m tons for
the year and lower overall CO2 emission concentration rate per unit of
clinker produced. Price Relative
75
95
115
135
155
175
195
215
235
22.4
27.4
32.4
37.4
42.4
47.4
52.4
57.4
62.4
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Relative IndexHK$
Anhui Conch Cement (LHS) Relative HSI (RHS)
83
103
123
143
163
183
203
223
243
263
17.9
27.9
37.9
47.9
57.9
67.9
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Relative IndexRMB
Anhui Conch Cement Co Ltd-A (LHS) Relative CSI300 Index (RHS)
Asia Insight SparX
Environmental, Social and Governance
Page 16
Climate-related financial disclosure
Element Comments
Governance
• The Board and commitment
Responsible for forming ESG management framework and strategy in a top-down manner.
• Stakeholder engagement and actively obtains the opinions and expectations of stakeholders on social responsibility (ESG inclusive).
Strategy
• Technological improvement for desulphurisation and denitration
As end of 2019, the company completed technological improvements for wet desulphurisation for 32 clinker production lines and technological improvements for composite desulfurisation for 14 clinker production lines in 12 subsidiaries. Since then, the emission concentration of sulphur dioxide was controlled at below 50mg/m3. The nitrogen oxides (NOx) emission concentration stayed below 320mg/m3.
As at end 2019, technological improvements to reduce particulate matter emissions was completed for 135 sets of equipment. Average emissions concentration of particulate matter fell below 10mg/m3.
• Wuhu Conch project (completed in 2020) is a showcase project for ultra-clean emissions i.e. the emission concentration of NOx, sulphur oxides (SOx) and particulate matter can be kept below 100mg/m3, 50mg/m3 and 10mg/m3 respectively
• Green Factories. As end of 2019, a total of 17 subsidiaries were named as a national, provincial and municipal “Green Factory”.
• Carbon capture. Its Baimashan Cement Plant produced 28,400 tons of industrial grade and food grade carbon dioxide products.
• In 2019, it invested RMB580m in energy conservation and emission reduction, and saved 850m kWh of power and 152,800 tons of standard coal, equivalent to reducing 1,132,400 tons of carbon dioxide emissions.
• First user of pure low-temperature residual heat power generation technology in China. Fossil energy is saved by using renewable energy (residual heat power generation technology). In 2019, 8,627m kWh was generated by residual heat, saving 2.76m tons of standard coal as compared with similar scale of fire-generated electricity and reducing CO2 emissions by 7.36m tons.
• Alternative fuels. In 2019, Jining Conch used 308,000 kWh of wind power across the year; whereas Baimashan Cement Plant, Xuancheng Conch and Tongling Conch, purchased and used >26.32m kWh of solar power, equivalent to saving 8,423tons of standard coal, and reducing 22,500 tons of carbon dioxide emission. It plans to use 51m kWh of clean energy in 2020 and its first domestic pilot biomass fuel system in Zongyang Conch has been put into operation.
• Clinker substitutes use mineral powder, fly ash, slag, coal gangue and other industrial waste. In 2019, it consumed 60.57m tons of various waste residues. Cement quality was stable and power consumption of per-ton cement production declined 1.9kWh, consumption of clinker reduced by 8.0863m tons, equivalent to reducing 7.137m tons of carbon dioxide emissions.
Source: Company, DBS HK
Asia Insight SparX
Environmental, Social and Governance
Page 17
Climate-related financial disclosure (con’t)
Element Comments
Risk management
• Risk management in climate-change
Headquarters carried out inspection and evaluated the risk factors in environmental management and the required rectifications.
As of end 2019, 77 subsidiaries had obtained the ISO 14001 Environmental Management System Certification.
Metrics and targets
• A clear target
For 2020, total emissions of sulphur dioxide (SO2) and NOx decline by 41%/29% from 2015 versus the 15% reduction required under the 13th Five-Year Plan. Emission concentrations of particulate matters, SO2 and NOx in all subsidiaries are kept below 15mg/m3, 100mg/m3 and 240mg/m3, respectively.
For 2025, all subsidiaries to obtain the Environmental Management System Certification, total emissions of NOx to decline by 50% from 2020, emission concentrations of particulate matters, SO2 and NOx in all subsidiaries to be kept below 10mg/m3, 50mg/m3 and 100mg/m3.
• For 2020, CO2 emissions per ton of clinker fell by 0.0045 tons from 2016, standard coal consumption for clinker production, comprehensive power consumption and power consumption of the cement production declined by 3.31%, 4.22% and 12.69% from 2015.
For 2025, CO2 emissions per ton of clinker to fall by 0.0031 tons from 2020, standard coal consumption for clinker production, comprehensive power consumption and power consumption of the cement production to decline 0.81%, 2.56% and 6.64% from 2020.
Source: Company, DBS HK
Asia Insight SparX
Environmental, Social and Governance
Page 18
China Resources Cement (1313 HK)
HOLD Last Traded Price (15 Mar 2021): HK$8.92 (HSI : 28,834) Price Target 12-mth: HK$10.50 (18% upside) Analyst
Duncan Chan+852 36684178, [email protected]
Forecasts and Valuation
FY Dec (HK$m) 2019A 2020A 2021F 2022F Turnover 38,956 40,087 39,874 40,129 EBITDA 14,588 14,487 15,308 15,331 Pre-tax Profit 12,008 11,893 12,589 12,582 Net Profit 8,618 8,960 9,494 9,614 Net Pft (Pre Ex) (core profit) 8,618 8,960 9,494 9,614 Net Profit Gth (Pre-ex) (%) 8.1 4.0 6.0 1.3 EPS (HK$) 1.23 1.28 1.36 1.38 EPS Gth (%) 4.7 4.0 6.0 1.3 Diluted EPS (HK$) 1.23 1.28 1.36 1.38 DPS (HK$) 0.60 0.62 0.65 0.66 BV Per Share (HK$) 6.01 7.11 7.81 8.53 PE (X) 7.2 7.0 6.6 6.5 P/Cash Flow (X) 5.5 6.0 5.3 5.1 P/Free CF (X) 6.8 11.6 10.4 6.7 EV/EBITDA (X) 4.0 3.9 3.6 3.3 Net Div Yield (%) 6.7 6.9 7.3 7.4 P/Book Value (X) 1.5 1.3 1.1 1.0 Net Debt/Equity (X) CASH CASH CASH CASH ROAE(%) 21.6 19.6 18.2 16.8 Earnings Rev (%): Nil Nil Consensus EPS (HK$) 1.41 1.42 Other Broker Recs: B:19 S:1 H:2
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters
Click here to the Insights Direct
Committed to carbon reduction and data disclosure. Among all listed
state-owned peers, CR Cement is a role model in the ESG area in the
China cement industry. CR Cement is committed to tackle this global
issue through multi-layer committees to oversee the issues at both
the board (CCRS committee) and unit level (EHS committee), chaired
by the Chief Executive Officer, by implementing various strategies and
developing new green products to achieve its carbon reduction
target. CR Cement’s Chairman was the ex- Co-Chairman of GCCA
(formerly CSI) in China. CR Cement’s promise is to adopt the highest
standard of disclosure to market investors, making this the highest
priority of the action plan for the next five years. One of the most efficient operating cement producers in China. CR
Cement is the largest cement producer in Southern region of China,
with a dominant market presence in Guangdong and Guangxi
provinces. According to the management, CR Cement’s 8 plants
located in Guangdong has participated and traded in Guangzhou
Tanpai Fangquan Exchange, as net seller of credit quota and should
receive monetary returns as a benefit. Price Relative
71
121
171
221
271
3.4
5.4
7.4
9.4
11.4
13.4
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Relative IndexHK$
China Resources Cement (LHS) Relative HSI (RHS)
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Environmental, Social and Governance
Page 19
Climate-related financial disclosure
Element Comments
Governance
• Well-structured committees at both the board and unit level for climate issues. All committee members regularly attend ESG and
climate change related education and training
At board level: “Corporate Culture and Social Responsibility Steering Committee” has been established and the Chairman of the Board
and the Chief Executive Officer serve as the President and the Vice President of the committee respectively.
At unit level: “Three-tiered Management and Control” is implemented in Environment, Health and Safety (“EHS”) organisational
system at each unit level and the EHS Management Committee at headquarters is chaired by the Chief Executive Officer.
As climate change is one of the important KPIs for the company, the above committees established would help to ensure a timely
response to address issues in the future.
• CR Cement’s Chairman was the ex- Co-Chairman of Cement Sustainability Initiative (currently Global Cement and Concrete
Association) in China
• Net seller of carbon quota. 8 plants in Guangdong and 5 plants in Fujian had settled carbon quota.
Source: Company, DBS HK
Asia Insight SparX
Environmental, Social and Governance
Page 20
Climate-related financial disclosure (Con’t)
Element Comments
Strategy
• Initiatives for minimising overall transition risk:
Business strategies (1) Green production. 100% of the company’s cement production plants have obtained permits for pollutant
emissions, (2) 100% of cement and clinker production plants are equipped with pure low-temperature residual heat recovery
generation systems, denitration systems and bag filters, (3) As of end-2019, the company completed the construction of 3 sets of
wet-process desulphurisation systems and 11 sets of composite desulphurisation systems, and (4) Certain cement production
plants located in Guangxi, and Yunnan are included as green factories as a role model in the register of national-level Green
Manufacturing.
• Other adaptation and mitigation activities
(1) Low carbon products. A 10% reduction in CO2 via self-researched combustion process (carbon capture) vs traditional
production, which has passed the low-carbon product certification. New products introduced such as aggregate and
prefabricated construction material.
(2) Decentralised energy generation. About 32% of the company’s electricity consumption was generated from residual heat,
equivalent to reducing 704,300 tons of CO2 emissions.
(3) Mode of distribution and transportation. Reduced cement sold in bags, thus reducing demand for product packaging.
(4) Waste disposal co-processing – includes existing 8 projects for solid waste, urban sludge and hazardous industrial waste.
• Undertake climate scenario planning based on change of 2 degrees in terms of cement market consumption fluctuation, extreme
weather strategies, entering new market opportunities, etc
• Financial impact. The accumulated investment in technological upgrade for energy saving and emission reduction and
environmental protection were RMB646 m and RMB1,511 m during 2017-2019. That is not material relative to the budgeted
capex of c.RMB2bn per annum, and overall balance sheet was in a net cash position.
Source: Company, DBS HK
Asia Insight SparX
Environmental, Social and Governance
Page 21
Climate-related financial disclosure (Con’t)
Element Comments
Risk management
• Prudent risk management practises in climate-related risk
A real-time platform has been established at headquarters to monitor the emissions of environmental pollutants from all
production lines, with timely reminders to verify abnormal data sent through the platform.
• Scrutiny of real-time pollutant emissions data of all production lines in order to improve the standards of clean production.
• Manageable market risk, related to change in customer behaviour and raw material costs, via low-carbon products.
• Reputation risk. Reported and investigated a total of 4,600 counterfeit “Runfeng Cement” woven bags in Shenzhen as of 9M2019.
Metrics and targets
• Advocate for highest standard of emission data disclosure
CR Cement makes disclosures as per guidelines from the State Environmental Protection Agency and China Cement Association.
We highlight that: (1) Scope 3 data is lacking and (2) without any specific target for carbon intensity reduction plan. However,
management emphasis that more related policies to increase transparency would come out soon, to satisfy the strict regulatory
requirements.
• Carbon intensity at the low-end of its Chinese listed cement peers
According to CR Cement’s ESG report, the company’s emission intensity of greenhouse gases improved to 0.8497 in 2019 from
0.8615 in 2016. However, the data provides little insight compared to western peers as the calculation method is different in
China.
• Seeking external advice on emissions data
For CR Cement’s Scope 1 and Scope 2 data, management has plans to obtain external assurance on the emission data to be
published.
Source: Company, DBS HK
Asia Insight SparX
Environmental, Social and Governance
Page 22
China National Building Material (3323 HK)
BUY Last Traded Price (15 Mar 2021): HK$11.16 (HSI : 28,834) Price Target 12-mth: HK$14.00 (25% upside) Analyst
Duncan Chan+852 36684178, [email protected]
Forecasts and Valuation
FY Dec (RMBm) 2019A 2020F 2021F 2022F Turnover 253,403 252,855 255,976 259,348 EBITDA 50,338 58,269 61,448 61,840 Pre-tax Profit 27,448 35,159 38,175 38,706 Net Profit 10,974 13,116 15,379 17,418 Net Pft (Pre Ex) (core profit) 10,974 13,116 15,379 17,418 Net Profit Gth (Pre-ex) (%) 38.4 19.5 17.3 13.3 EPS (RMB) 1.30 1.55 1.82 2.06 EPS (HK$) 1.55 1.85 2.17 2.46 EPS Gth (%) 38.4 19.5 17.3 13.3 Diluted EPS (HK$) 1.55 1.85 2.17 2.46 DPS (HK$) 0.42 0.50 0.59 0.66 BV Per Share (HK$) 11.40 12.76 14.35 16.15 PE (X) 7.2 6.0 5.1 4.5 P/Cash Flow (X) 1.2 2.4 2.0 1.8 P/Free CF (X) 2.1 28.1 4.0 3.3 EV/EBITDA (X) 6.1 5.5 5.1 4.9 Net Div Yield (%) 3.7 4.5 5.2 5.9 P/Book Value (X) 1.0 0.9 0.8 0.7 Net Debt/Equity (X) 1.0 0.9 0.7 0.6 ROAE(%) 14.4 15.4 16.0 16.2 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 1.60 1.88 1.89 Other Broker Recs: B:24 S:0 H:1
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters
Click here to the Insights Direct
Initiative to address the issue and facilitate green and low carbon
development. The company is vigorously promoting low-temperature
waste heat recovery for power generation in cement rotary kilns. In
2019, the waste heat recovery system for power generation of its
subsidiaries in the cement business generated 9.403b kWh of
electricity, led to a consumption reduction of 1.1557m tons of
standard coal, emission reduction of 3.0279m tons of carbon dioxide,
and generated nearly RMB3.914 bn of economic benefits.
Rising awareness of sustainable development concept. The group
undertook restructuring to unlock synergies across its various
business segments. Subsidiaries namely Sinoma Cement and
Southwest Cement saw substantial emission reductions over the past
year, thanks to management’s dedicated efforts in pursing sustainable
growth as a top priority.
Price Relative
61
81
101
121
141
161
181
201
221
241
3.8
5.8
7.8
9.8
11.8
13.8
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Relative IndexHK$
China National Building Material (LHS) Relative HSI (RHS)
Asia Insight SparX
Environmental, Social and Governance
Page 23
Climate-related financial disclosure
Element Comments
Governance
• The Board is the highest decision-making body for ESG management
• In 2019, increased disclosure made on Environmental, Safety and Health Management System. This system has helped to increase
efficiency and lowered risks for sustainable development of business.
• Communication with various stakeholders on a regular basis
Strategy
• Waste heat power
In 2019, Sinoma Cement generated a total of 659.77m kWh of electricity by waste heat power, equivalent to saving 81,085 tons of
standard coal, reducing carbon dioxide emissions by 657,795 tons.
• Upgrading eco technics
For example, Zhongfu Xigang has carried out lay-up of FRP ships from hand lay-up to vacuum membrane PFRP resin compression
technology. Jiangxi Porcelain saves 150kWh electricity per month through the transformation of old motors.
• Green product
Adjustments made to structure of basic building material products and used industrial waste resources as raw materials to
produce building materials.
• Supply chain management
It implemented green procurement strategy and gives priority to environmentally friendly products those that have low carbon
emissions during their production process. Also, clean energy is given primary consideration.
Risk management
• Daily risk management as the first line of defence to establish a sound business process-oriented management system
• Continuous risk monitoring and control, as the second line of defence in risk management. Integrates different information
disclosure targets to improve information flow to the Board
• Independent internal review as industry practice
Metrics and targets
• Better disclosure
In 2019, greenhouse gas emissions +6.8% and intensity of greenhouse gas emissions -7.7%. Also, data were provided for NOx,
SOx, industrial particulate matter -6.7%/ -19.9%/ +19.7% for the period.
• Specific metrics used
Total energy consumption and intensity of total energy consumption were +4.9% and -9.4%, respectively.
• The company did not provide specific target or timeframe on the emission reduction.
Source: Company, DBS HK
Asia Insight SparX
Environmental, Social and Governance
Page 24
Appendix: Results of our assessment on management quality
Source: TPI, DBS HK
Anhui
Conch
China
Resources
CNBM West
Cement
Asia
Cement
Taiwan
Cement
T ianrui
Cement
Shanshui
Cement
BBMG Huaxin
Cement
J idong
Cement
T ianshan
Cement
Level 01 Does the company acknowledge climate change as
a significant issue for the business?
√ √ √ √ √ √ √ √ √ √ √ √
2 Does the company recognise climate change as a
relevant risk and/or opportunity for the business?
X X X X √ X X X X X X X
3 Does the company have a policy (or equivalent)
commitment to action on climate change?
√ √ √ √ √ √ √ √ √ √ √ √
4 Has the company set greenhouse gas emission
reduction targets?
X X X X √ √ √ X X X X X
5 Has the company published information on its
operational (Scope 1 and 2) greenhouse gas
emissions?
X X X X √ √ √ X X X X X
6 Has the company nominated a board member or
board committee with explicit responsibility for
oversight of the climate change policy?
X X X X √ √ X X X X X X
7 Has the company set quantitative targets for
reducing its greenhouse gas emissions?
√ X X X √ √ √ X X X X X
8 Does the company report on Scope 3 emissions? X X X X √ √ X X X X X X
9 Has the company had its operational (Scope 1
and/or 2) greenhouse gas emissions data verified?
X X X X √ √ X X X X X X
10 Does the company support domestic and
international efforts to mitigate climate change?
X √ √ √ √ X X X X X X X
11 Does the company disclose its membership and
involvement in trade associations engaged in
climate issues?
X X X X √ X X X X X X X
12 Does the company have a process to manage
climate-related risks?
X X X X √ X X X X X X X
13 Does the company disclose materially important
Scope 3 emissions?
X X X X X X X X X X X X
Level 1
Level 2
Level 3
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Environmental, Social and Governance
Page 25
Appendix: Results of our assessment on management quality (continued)
Source: TPI, DBS HK
Anhui
Conch
China
Resources
CNBM West
Cement
Asia
Cement
Taiwan
Cement
T ianrui
Cement
Shanshui
Cement
BBMG Huaxin
Cement
J idong
Cement
T ianshan
Cement
14 Has the company set long-term quantitative
targets for reducing its greenhouse gas emissions?
X X X X X √ X X X X X X
15 Does the company's remuneration for senior
executives incorporate climate change
performance?
X X X X √ X X X X X X X
16 Does the company incorporate climate change risks
and opportunities in their strategy?
X X X X √ X X X X X X X
17 Does the company undertake climate scenario
planning?
X X X X X X X X X X X X
18 Does the company disclose an internal price of
carbon?
X X X X X X X X X X X X
19 Does the company ensure consistency between its
climate change policy and the positions taken by
trade associations of which it is a member?
X X X X X X X X X X X X
Level 4
Asia Insight SparX
Environmental, Social and Governance
Page 26
DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)
*Share price appreciation + dividends
Completed Date: 16 Mar 2021 10:29:38 (HKT)
Dissemination Date: 16 Mar 2021 15:40:29 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS
Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or
duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its
respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any
of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do
not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This
research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular
needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain
separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from
any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to
buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document.
The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking
services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events
will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not
guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no
obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research
publication relating to any issuer.
Asia Insight SparX
Environmental, Social and Governance
Page 27
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to
significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based
will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE
RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as
recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of
securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
Asia Insight SparX
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ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report
accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views
expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of
any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily
responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible
for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information
held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS
Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in Anhui Conch Cement Co Ltd (914 HK), China Resources Cement Holdings Ltd
(1313 HK) and China National Building Material Co Ltd (3323 HK) recommended in this report as of 12 Mar 2021.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. Compensation for investment banking services:
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other
investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect
a transaction in any security discussed in this document should contact DBSVUSA exclusively.
4. Disclosure of previous investment recommendation produced:
DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities /
instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous
investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or
adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation
arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective
investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other
jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.
DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services
provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the
Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.
Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or
licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. DBS Bank Ltd., Hong Kong Branch is a limited
liability company incorporated in Singapore.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604
3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this
report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations,
affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities
mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also
have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial
Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its
respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the
report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the
contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in
connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.
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United Kingdom This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority
This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority
in the United Kingdom.
In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no
part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This
communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will
only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.
Dubai International
Financial Centre
This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor, Gate Precinct Building 5, PO Box 506538, Dubai
International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research
report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United Arab
Emirates
This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by
the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a
solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment
objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of
buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be
accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research
analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation,
communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by
DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such
other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities
referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated
investors as defined in the laws and regulations of such jurisdictions.
DBS Bank (Hong Kong) Limited
13 th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong
Tel: (852) 3668-4181, Fax: (852) 2521-1812
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DBS Regional Research Offices
HONG KONG
DBS Bank (Hong Kong) Ltd
Contact: Carol Wu
13th Floor One Island East,
18 Westlands Road,
Quarry Bay, Hong Kong
Tel: 852 3668 4181
Fax: 852 2521 1812
e-mail: [email protected]
MALAYSIA
AllianceDBS Research Sdn Bhd
Contact: Wong Ming Tek (128540 U)
19th Floor, Menara Multi-Purpose, Capital Square,
8 Jalan Munshi Abdullah 50100, Kuala Lumpur, Malaysia.
Tel.: 603 2604 3333
Fax: 603 2604 3921
e-mail: [email protected]
Co. Regn No. 198401015984 (128540-U)
SINGAPORE
DBS Bank Ltd
Contact: Janice Chua
12 Marina Boulevard,
Marina Bay Financial Centre Tower 3
Singapore 018982
Tel: 65 6878 8888
e-mail: [email protected]
Company Regn. No. 196800306E
INDONESIA
PT DBS Vickers Sekuritas (Indonesia)
Contact: Maynard Priajaya Arif
DBS Bank Tower
Ciputra World 1, 32/F
Jl. Prof. Dr. Satrio Kav. 3-5
Jakarta 12940, Indonesia
Tel: 62 21 3003 4900
Fax: 6221 3003 4943
e-mail: [email protected]
THAILAND
DBS Vickers Securities (Thailand) Co Ltd
Contact: Chanpen Sirithanarattanakul
989 Siam Piwat Tower Building,
9th, 14th-15th Floor
Rama 1 Road, Pathumwan,
Bangkok Thailand 10330
Tel. 66 2 857 7831
Fax: 66 2 658 1269
e-mail: [email protected]
Company Regn. No 0105539127012
Securities and Exchange Commission, Thailand