J.P. 摩根-美股-建材行业-美国建筑材料行业投资策略分析-2019.3.21-242页.pdf

North America Equity Research21 March 2019Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($mn)Price($)CurPrevCurEnd DatePrevEnd DateVulcan MaterialsVMC US15,233.12115.35OW135.00Dec-19Martin Marietta MaterialsMLM US12,324.46195.76OW225.00Dec-19Eagle MaterialsEXP US3,321.1671.77N85.00Dec-19Summit MaterialsSUM US1,964.6017.07N19.00Dec-19Source:Company data,Bloomberg,J.P.Morgan estimates.n/c=no change.All prices as of 20 Mar 19.US Construction MaterialsInitiating Coverage of VMC and MLM with OW on larger Aggregates exposure;EXP and SUM at N Americas Construction MaterialsAdrian E Huerta AC*(52-81)8152-Bloomberg JPMA HUERTA Froylan Mendez(52-55)5540-J.P.Morgan Casa de Bolsa,S.A.de C.V.,J.P.Morgan Grupo Financiero*Registered/qualified as a research analyst under NYSE/FINRA rules.See page 237 for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.We are initiating coverage of the US Construction Materials sector with OW ratings on VMC and MLM as we like their large aggregates exposure that is more exposed to infra spending,which is growing more than Res and Non-Res.They are also more exposed than peers to states with stronger growth fundamentals.We are also initiating coverage of EXP and SUM with N ratings as they have lower growth profiles.The sector has performed well this year at+17%on average(+4pp vs SPX and+5pp vs US MSCI Materials),excluding SUM,which is+42%and is trading at its average historical EV/EBITDA.This report includes extensive analysis on prices,volumes,costs and margins but also on market share evolution,analysis on a per state basis and detailed views on the Residential,Non-Res and Infra sectors.Bottom-up views We see prices and volumes accelerating this year.On aggregates volumes,while last year our sample grew 3.1%(same as for the industry),for this year we see it growing 4.9%,outpacing the industrys expected growth of 2.4%.For cement vols,last year our sample also performed weaker than the industry at+1.4%,impacted by adverse weather especially in TX,vs+2.2%for the industry while for this year we expect it to be 0.5pp above the industrys+2.2%.On prices,aggregates were+2.8%last year(below the+4%for the industry),and we expect+4.8%for this year,and on cement we expect+2.9%this year vs+2%last year,which was only 0.3pp below the industry.Margins should improve this year after disappointing in the past two.Higher energy and distribution costs have impacted margins with EBITDA margins-1pp in 2018 and in 2017 after posting+2.7pp in 2016,and we expect consolidated margins to be+1.2pp this year mainly driven by stronger pricing momentum and lower increases in cash costs(JPM cement energy cost inflation index could be flattish this year if it remains at current levels as of Feb 2019)than last year.We expect stronger EBITDA growth vs last year and led by VMC.EBITDA growth for the sector has decelerated in the past two years.After increasing 18%in 2016,it went to+8%in 2017 and only+3%last year,but we expect this year to be+11%,which means a small margin expansion.We expect VMC and MLM to lead the growth again.2North America Equity Research21 March 2019Adrian E Huerta(52-81)8152- FCF conversion rate expected to improve further this year.Last year the conversion rate was 36%on average vs 29%in 2017,and we expect it to be 41%for this year.Last year,VMCs and MLMs rates increased by 26pp and 18pp,respectively,reaching 44%,while the rate was flat for EXP and-13pp for SUM.Top-down views Top-down views favor VMC and MLM.VMC is highly exposed to our product,geographic and end-market preferences in the US followed by MLM among pure US players.Meanwhile,geographic footprints for CX and Argos are the highest with Tier 1 States while GCC follows VMC with the highest exposure to the infra/public sector.We like aggregates over cement and RM for the following reasons:(1)Stronger LT growth prospects as aggregates players are more exposed to the public sector.In the last 3 quarters,aggregates volumes were growing 2pp above the growth in cement vols.(2)More inelastic demand with prices+4%in a 7-year CAGR vs+1%for volumes,while for cement+4%on prices vs+4.5%on volumes.And(3)higher margins and operating leverage,on the cost side less exposed to energy prices and a higher percentage of fix costs driving a 50-60%operating leverage.Infra(public)sector growth accelerating and has outperformed the rest.Afterseveral years of declines,it was+7%in 2018,and we expect it to grow 3/3.5%driven mainly by efforts from state and local governments to increase infra funding.We believe that chances are high for a formal discussion on a new infrastructure plan to be finally addressed.Our base-case scenario is not based on the approval of a new infrastructure plan but assumes positive momentum from project backlog.Demand from the housing sector has likely reached a peak but likely still growing at a low-single-digit pace for the next couple of years while the recent slowdown has mostly been explained by higher interest rates,but there are downside risks.Cement is more exposed to Res than agg.Non-residential sector should keep slowing down in 2019 driven by key cement/aggregates intensive segments,and we see no clear inflection point yet despite Jans m/m gains and we believe y/y growth could remain in the+2-3%range vs+5%last year.Strong demand in the US“Sunbelt”region with key cement&aggregates consuming states expected to see+40%population growth by 2040(2%per year)and with cement and aggregates demand still below peak levels.CX,Argos,and MLM are exposed to the most attractive geographical regions among US-exposed players given a large exposure to what we classify as tier 1 states(California,Florida,and Texas).3North America Equity Research21 March 2019Adrian E Huerta(52-81)8152-Table of ContentsExecutive Summary.6Bottom-up views.7Top-down views.8Sector Risks.9Key Themes.11Top-down views favor VLM and MLM.11We like aggregates over cement and RM.12Geographic exposure is important;CX,Argos,MLM and VMC more exposed to Tier 1 states.13Infra could surprise positively,and downside risks limited.15Margins should improve this year after disappointing in past two years.19.driving stronger EBITDA growth vs last year and led by VMC.22Volumes,larger LT upside on aggregates.24Aggregates prices grow more consistently than cement.27EXP generates the highest ROIC,explained by its wallboard business,but is declining while for the rest increasing.30Growth capex and acquisitions;VMCs investment yields are 2-3x more than peers.30Return of cash through buybacks should continue.32FCF conversion rate expected to improve further this year.33Favor Aggregates over Cement and RM.37Aggregates more exposed to Public Construction,our favored end market.39Demand is highly correlated among Cement and Aggregates and both below peak levels.40Similar pricing trends for Agg and Cement but more defensive for Agg,which allows for higher margins.41Aggregates could grow stronger than Cement as most players at full capacity and imports will play a role.44Cement imports profitability dependent on four items.45Energy costs:RM/Aggregates less exposed to fuel volatility than Cement but key inputs have started to decline.49Aggregates have high entry barriers.54The 2020 IMO regulation could drive lower cash cement costs while pushing higher imported cement costs.57What are Aggregates,cement and RM?.61Residential growth slowing after a long recovery.CX,EAG&SUM most exposed.63Housing sentiment recovering after a weak 2H18,but not yet shown in permits.65EXP,CX and MLM have the largest exposure to states with housing permits above the national average.68Household formation has been gaining momentum.69Housing inventory well below historical average at 1.8mn.71Strong affordability compensates higher mortgage rates.71Home improvement as a share of consumers wallet has been recovering.76Infra starting to recover despite lack of plan Vulcan,GCC&MLM most exposed.79Strong momentum led by aggregates&cement intensive segments within public construction spending.80Vulcan,MLM and GCC with the largest exposure to infrastructure.81Public spending with large room to grow.81.and is recovering.85Recovery driven by state&local govt investments.88.by solving their infrastructure deficit on their own.90Federal government programs.934North America Equity Research21 March 2019Adrian E Huerta(52-81)8152-Non-residential to keep slowing down in 2019 SUM&MLM the most exposed.98All states are different.105Demand in most states below peak levels,but“Sunbelt”region with most promising outlook and momentum.105Mid-term demand outlook favors Sunbelt region.108Among pure US players:Key exposure to CA and TX drives outperformance in Vulcan and MLM regions vs.the US.110Valuation.118Summit most shorted name.124Cyclical stocks within a cyclical sector.but some more than others;SUM/EXP are more cyclical than VMC/MLM.125Vulcan Materials.128Well positioned to continue growing EBITDA above peers that warrants its premium valuation;Initiate at OW.128Investment Thesis.128Risks to Rating and Price Target.129Highest exposure to aggregates among peers.130 while infrastructure sector is its largest end market.130Key exposure to California,Texas and Georgia where it has integrated RM and Asphalt operations.131EBITDA growth above peers.132.driven by top line but also from margin expansion.132Unit profitability on Agg is the highest among peers.134FCF generation is strong at 37%of EBITDA.135.and has large cash returns to shareholders.136Disciplined Leverage at only 2x.137Vulcan businesses.137Martin Marietta.143Best geographic mix with room to surprise on market share recovering and pricing;Initiate at OW.143Investment Thesis.143Risks to Rating and Price Target.144EBITDA growth at+11%this year.145.driven by higher margins.145.and with cement vols+2%and aggregates+6%.146Aggregates per ton gross profit+72%(2017 vs 2014)but down last year.146Strong FCF generation reaching 44%of EBITDA in 2018.149Large cash returns to shareholders.149With room to continue doing M&A.150A leading aggregates-led company in the US.152.looking to grow further in cement.153Top 5 markets make 70%of sales with 38%coming from TX.153MLM businesses.154Eagle Materials.162Low leverage,ample cash returned to shareholders but limited growth potential;Initiate at N.162Investment Thesis.162Risks to Rating and Price Target.163EXPs capital structure a strategic positive.164Lean management focused on ROE.165EBITDA growth has been relatively flat in past two years excluding acquisitions.1665North America Equity Research21 March 2019Adrian E Huerta(52-81)8152-Cement accounts for 45%of EBITDA.167.&wallboard for 40%.169Oil&Gas business with large upside but could take time.171EXP businesses.172Summit Materials.181Building an empire has its costs;Initiate at N on high leverage.181Investment Thesis.181Risks to Rating and Price Target.182Growth has come from large M&A investments.183But should not do acquisitions yet given high leverage.183.and a low value share price.184Aggregates is 36%of gross profits.184 with large exposure to Texas,Utah,Kansas and Missouri.185FCF should improve on lower capex and EBITDA growth.1892018 was weak with EBITDA-7%despite acquisitions.190.but guiding for 6-16%EBITDA growth this year.191Summit businesses.192Appendix State details.199Vulcan Materials.225Martin Marietta Materials.228Eagle Materials.231Summit Materials.234We acknowledge the key contribution to this report from Emilio Bailon of Banco J.P Morgan S.A.6North America Equity Research21 March 2019Adrian E Huerta(52-81)8152-Executive Summary We initiate coverage of VMC with an OW and a Dec-19 price target of$135,which is based on a fwd EV/EBITDA multiple of 14.5x,in line with its 5YR average.The company has a large 90%exposure to Agg,which we favor over cement,and it has a leading position in most of its regions.We like the companys discipline to return cash to shareholders,its clear strategy and low leverage,its attractive and efficient asset portfolio and its attractive returns on investments that justify its premium valuation vs peers.This stock should strongly benefit frompositive news on infrastructure investments,and last year it posted the highest EBITDA growth among peers and we expect that to happen again this year.We initiate coverage of MLM with an OW rating and a Dec-19 price target of$225,which is based on a fwd EV/EBITDA multiple of 12.6x,mostly in line with itshistorical average.We like the companys high exposure to aggregates,and it should benefit this year from its high exposure to TX that was severely impacted last year by adverse weather conditions.We expect the company to continue being disciplined on acquisitions as it has room on its balance sheet to continue investing,but we also expect it to continue returning cash to shareholders.We initiate coverage of EXP with a N rating and a Dec-19 price target of$85,which implies a fwd EV/EBITDA multiple of 8.4x.EXP has the largest exposure to cement(operating at full capacity)vs peers at 45%of EBITDA,while its second largest segment is gypsum wallboard with 40%that is heavily linked to Res and remodeling.Thus,it has the highest exposure to the Residential sector at 50%for which we see less attractive growth versus the public sector.We see limited M&A opportunities in cement,but EXP could add on to its aggregates exposures that are small(only 3.4 mt sold last year vs 170-200 mt for MLM and VMC and 48 mt for SUM).With EBITDA relatively flattish in the past few years,we believe the company will continue to return a large amount of cash to shareholders.We initiate coverage of SUM with a N rating and a Dec-19 price target of$19,which implies a fwd multiple of 8.5x vs a 9.1x historical average.We like the companys product mix and end market exposure more than EXPs,but its geographic mix is a bit weaker than VMCs and MLMs.EBITDA was-13%on anl-t-l basis last year driven by lower cement volumes and flat on aggregates but also from weak prices driving down consolidated margins,and SUM is now guiding for 6-16%growth in 19(JPMe+11%),which seems challenging.With leverage being the highest among peers,it seems difficult to fund large acquisitions and should focus on enhancing EBITDA and especially FCF that is running at a low 26%FY19 conversion rate(13%in FY18)despite minimal cash taxes and is below peers.Table 2:Summary Ratings and Price TargetsJPMCurrDec-19EV/EBITDAP/E3M ADTVRatingpricePTupside19e20ePT19e20e$mnVMC OW115.313521%14.012.514.523.821.4130MLM OW197.822515%12.711.312.522.118.8141EXPN73.58511%8.87.88.413.912.951SUMN17.6196%9.28.38.426.018.326CXOW4.9864%6.15.26.99.57.235ArgosN6,6