中国建材（03323） 　　Summary 　　“Overweight” Rating. We think the stock market is too pessimistic aboutChina National Building Material (3323.HK) (�DCNBM‖), a leading buildingmaterial company in China. We forecast its 2016-2017 net profit of RMB2,452mn and 4,168mn, and suggest target price of HK$5.4 (2017 PE of 7x,50% above current stock price). 　　Good Elasticity. CNBM is China’s largest cement producer in terms ofoutput and sales. Although its 1H16 net profit attributable to the shareholdersof listed company was merely RMB110mn, CNBM managed quarterly netprofit of RMB609mn in 3Q16. The turning points of the gross margins ofcement producers in East and Central China usually appear in September, andOctober will be even better. We predict CNBM’s 4Q16 net profit to rise toRMB1.5bn-2.0bn, and 2016 net profit to rise to around RMB2bn, much betterthan the consensus market expectation at present. And we also anticipate its2017 net profit growth to be above 50% high. 　　Key Beneficiary of “Supply-side Reform”. On August 22nd, SASAC ratifiedthe merger of CNBM Group and China National Materials (�DSinoma‖). Theprogress of this merger was faster than market expectation, and the merger ofJidong Cement and BBMG in East China market was also proved effective.We anticipate this new round of industrial consolidation will help to eliminatebackward production capacities and further increase industrial concentration,during which, CNBM is one of the key beneficiaries. 　　Better Earnings to Recover PB. At present, CNBM’s PB is only 0.32x(record low), reflecting market worries about its huge exposure to real estateand infrastructure investment chain and its deteriorating profit margin andasset quality. Anyway, the recovery of the profit margin of cement industrywill help to increase the earnings of concrete business and improve assetquality, which will in turn reduce the stock market pessimism. 　　Risks: slumps of cement prices; marginal deterioration of marketdemand and supply.