Construction:The Data for May is Mediocre,Watching the Trend of Real Estate

Event: NBS released the domestic economic data for May 2017 on June 14th.

    The cement output was 892 million ton from Jan to May, up 0.7% YoY, equal to the previous value, theoutput up 0.5% YoY in May.

    The average glass output was 342 million box from Jan to May, up 7.4% YoY, 1% higher than the previousvalue, the output up 8.9% YoY in May.

    The revenue of construction and material was CNY 122.4 billion from Jan to May, up 13.6% YoY, 0.8%lower than the previous value, up 11% YoY in May.

    Comments:The cement output increased in May, inventory remained low, the price will be higher than before in slackseason. The national cement output up 0.7% from Jan to May, the supply and demand remainedequilibrium. Looking at the inventory, national average inventory in May was about 61%, up slightly MoM,but still lower than the previous 68.5% level. Considering the launch of stagger strategy, it is now a lowinventory level, the price may higher than previous years in slack season.

    The glass price has grown gradually, will remain high in the future. The output was 73 million box, up 8.9%YoY, was in the historical high level, the glass price was stable as well. Considering the demand ofconstruction projects this year, the demand for glass is quite stable, the price will stay high in the future.

    The sales of consumer construction material slid but still high. The revenue of construction and materialsslid 13.6% from Jan to May due to slower growth of regional sales. Considering the strong supporting ofTier-3, Tier-4 sales, the market will not be affected much.

    Investment Strategy:The profitability of cement industry is quite stable, we suggest entering in slack season. The market isgetting into slack season but the price will remain high. The inventory level is relatively low compare to2015 and 2016. The demand side will be fluctuated due to the real estate and infrastructure investmentfluctuation but it should be stable overall. The profitability of cement industry is quite stable, we suggestto enter in slack season, recommend ACC, the leading company, implying 9x 17E PE.

    Consumer material market is depending on the trend of real estate industry in short term and driven bythe endogenous growth of brands, the leading companies of the industry segments will growth steadily inlong run. We recommend Weixin NBM and BNBMPLC。For the small cap growth stock, we recommendDWJJ and Youpon Ceiling.

    Potential Risks: The impact of financial deleverage on entity economy.