EM turnaround boosts global recovery

Disclaimer & Disclosures: This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of ithttps://www.research.hsbc.comGlobal CementSeptember 2016Equities // Building Material – GlobalPlay video with John Fraser-AndrewsGlobal CementEM turnaround boosts global recoveryReturn on capital to recover in 2017-18 on higher cement prices, with EM positive demand/supply balance for the first time since 2013 Our proprietary analysis highlights new greenfield capacity as unviable in almost all countries, and cement exports a marginal threat at current pricesOur top picks are global majors LafargeHolcim, CRH, Buzzi and from our EM coverage Semen Indonesia, Indocement, Cemex Holdings Philippines, BBMG and Cimsa EQUITIESBUILDING MATERIAL – GLOBALSeptember 2016By: John Fraser-Andrews, Shishir Kumar Singh, Wei Sim, Jigar Mistry, Patrick Gaffney, and Eduardo Altamirano  1 EQUITIES  BUILDING MATERIAL – GLOBAL September 2016 Investment summary 2 Forecasting a pick-up in global cement prices 11 Forecast global volume pick-up from 2015-16 nadir 19 Company profiles 35 LafargeHolcim 36 Buzzi 38 CRH 40 HeidelbergCement 42 Cemex Holdings Philippines 44 Semen Indonesia 46 Indocement 48 BBMG 50 Cimsa 52 Disclosure appendix 61 Disclaimer 64 Contents This report is a bottom-up review of the global cement industry, drawing on the insights and forecasts of seven analysts covering 25 cement producers including the global majors (Europe listed and Cemex), and mostly single-country producers in Colombia, India, China, Indonesia, the Philippines, Thailand, Turkey, South Africa and Saudi Arabia. Target price changes in this report Current _______ TP ________ Rating Upside/ EV/EBITDA ROIC FCF yield Dividend yield Company Ticker Currency price Old New downside 2018e 2018e 2018e 2018e Buzzi BZU.MI EUR 17.3 20 22 Buy 26.9% 5.7 7.7% 10.5% 3.2% CRH CRH.I EUR 29.1 30 34 Buy 17.0% 7.7 8.4% 7.3% 2.4% HeidelbergCement HEIG.DE EUR 78.5 82 89 Buy 13.4% 6.6 7.2% 10.9% 4.5% LafargeHolcim LHN.VX CHF 49.7 58 59 Buy 18.8% 6.3 7.9% 13.1% 4.4% Source: Thomson Reuters Datastream, HSBC estimates. Priced as of close at 13 September 2016 close  EQUITIES  BUILDING MATERIAL – GLOBAL September 2016 2 We forecast a rally in return on capital in 2017-18 from most of our global cement coverage on higher cement prices, facilitated in EM by accelerating demand exceeding new capacity supply for the first time since 2013. In developed markets, we reiterate our Buy ratings on industry bellwether LafargeHolcim, US-exposed CRH, Buzzi and HeidelbergCement. Our key Buys in emerging markets are Indocement and Semen Indonesia in Indonesia, Cemex Holdings Philippines, Turkey’s Cimsa and China’s BBMG. EM turnaround boosts global recovery We project H2 2016 to be the turning point in EM for an improvement in the balance between demand and supply and for an upturn in cement prices. For our EM country coverage, our 2017 forecasts represent the first year since 2013 that accelerating volume growth would exceed decelerating new capacity supply, as we expect consumption to respond to both the increase in oil/commodity prices and lower base rates in most countries. Our forecast of an upturn in EM cement prices is supported by our deep level analysis in this report, which concludes that new greenfield capacity is unviable in almost all countries and that international cement trade carries few threats to current pricing levels. Therefore, the rate of new capacity expansion, which we have reviewed on a bottom-up basis, should remain low. The acceleration in demand that we project should allow cement producers to raise cement prices and returns on capital from the depressed levels that have prevailed for the last four years. We have become increasingly positive within our EM cement coverage in the last three months, having upgraded a number of stocks to Buy (see list of reports in Appendix 1) including the industry heavyweight LafargeHolcim on 30 August, Semen Indonesia and Indocement from our Indonesia coverage on 25 July, Turkish producer Cimsa on 9 September and we initiated on Cemex Holdings Philippines with a Buy rating on 10 August. We also remain optimistic on the prospects for sustained building materials volume and price growth in the US and for a broadening recovery in Europe, driven by the stimulus to housing demand from lower-for-longer cost of debt finance. In this report, we reiterate our Buy ratings and raise our target prices on CRH (to EUR34 from EUR30), Buzzi Unicem (to EUR22 from EUR20), HeidelbergCement (to EUR89 from EUR82) and LafargeHolcim (to CHF59 from CHF58). We also increase our EBITDA recovery forecasts by 1-3% through to 2018 for the first two companies. Higher returns on capital in prospect across the sector Our cement volume and price forecasts in North America and Europe are unchanged since we last published on 12 July 2016 in Buildi