Company Reports

Narrow-moat Anhui Conch Cement’s first-quarter 2024 net profit was down 41% year on year to CNY 1.5 billion and only accounts for 15% of our full-year forecast. However, we view the results as broadly in line, given that the first quarter is seasonally weak. We maintain our fair value estimate of HKD 29.00 per H-share (CNY 26.50 per A-share). With H-shares trading at 0.4 times 2024 price/book and an estimated yield of close to 6%, we think the shares are attractive to long-term investors. That said, Conch’s earnings are sensitive to demand from the real estate sector. We believe a meaningful recovery in the housing market will be the key driver for share price performance. This is likely to be slow, with the market only expected to bottom in 2024.

Stripping out impairment of about CNY 334 million, narrow-moat Anhui Conch Cement’s 32.6% year-on-year decline in 2023 net profit is largely within our expectation. This is primarily driven by lower selling prices and falling cement demand amid the lackluster real estate market. We keep our fair value estimate of HKD 29.00 per H-share (CNY 26.50 per A-share). With H-shares trading at 0.4 times 2024 price/book and an estimated yield of more than 5%, we think the shares are attractive for long-term investors. We believe share price performance will be driven by signs of a price recovery in China’s housing market, and we expect China’s real estate market will gradually recover through 2026.

With annual cement production capacity of 395 million metric tons in 2023, Anhui Conch Cement is one of the largest cement producers in the world. Closely tied to infrastructure and real estate construction, China’s cement industry is challenged by the shift toward a less construction-intensive economy. However, we believe Conch's strong balance sheet (net cash as of the end of 2023) and best-in-class mining assets position it best to weather slowing investment in China and achieve modest market share gains at the expense of overleveraged competitors.

Producing more than 300 million metric tons of cement annually, Anhui Conch Cement is one of the largest cement producers in the world. Closely tied to infrastructure and real estate construction, China’s cement industry is challenged by the shift toward a less construction-intensive economy. However, we believe Conch's strong balance sheet (net cash as of the end of 2022) and best-in-class mining assets position it best to weather slowing investment in China and achieve modest market share gains at the expense of overleveraged competitors.

We cut narrow-moat Anhui Conch Cement’s fair value estimate to HKD 29.00 per H-share (CNY 26.50 per A-share) from HKD 33.00 (CNY 31.00) after factoring in a slower recovery in the real estate sector, which results in weak cement demand and lower cement prices. We now expect 2023 and 2024 net profit to fall 29% and 9% year on year, respectively, before growing 4% in 2025. With H-shares trading at 0.4 times 2024 price/book, we think Conch is currently undervalued based on our view that China’s real estate market will gradually recover through 2026. However, we believe investors eyeing Conch may stay sidelined until there are signs of a price recovery in China’s housing market.

Producing more than 300 million metric tons of cement annually, Anhui Conch Cement is one of the largest cement producers in the world. Closely tied to infrastructure and real estate construction, China’s cement industry is challenged by the shift toward a less construction-intensive economy. However, we believe Conch's strong balance sheet (net cash as of the end of 2022) and best-in-class mining assets position it best to weather slowing investment in China and achieve modest market share gains at the expense of overleveraged competitors.

Anhui Conch Cement’s third-quarter net profit of CNY 2.2 billion fell 15% year on year and trailed our expectations. The disappointing performance was due to weak cement prices. The operating environment remains challenging this quarter, with the industry generally delivering sharply lower earnings. After considering the lackluster cement demand and lower margins, we cut 2023-25 earnings by 15%-16%. Consequently, our fair value estimate is lowered to HKD 33.00 per H share (CNY 31.00 per A share) from HKD 37.50 (CNY 34.50). While we still expect a recovery for the sector, we think it will be slow and subdued, given China’s sluggish property market. That said, our view is that Conch is undervalued currently, with H-shares trading at 0.5 times 2024 price/book.

Anhui Conch Cement’s first-half net profit of CNY 6.8 billion is disappointing, falling 32% year on year. The miss is due to lower average selling prices and weak cement demand. That said, we think Conch still outperformed the industry given that some of its peers delivered a sharper drop in earnings.

Producing more than 300 million metric tons of cement annually, Anhui Conch Cement is one of the largest cement producers in the world. Closely tied to infrastructure and real estate construction, China’s cement industry is challenged by the shift toward a less construction-intensive economy. However, we believe Conch's strong balance sheet (net cash as of the end of 2022) and best-in-class mining assets position it best to weather slowing investment in China and achieve modest market share gains at the expense of overleveraged competitors.

We keep narrow-moat Anhui Conch Cement’s fair value estimate unchanged at HKD 45 per H-share (CNY 40 per A-share) after its in-line first-quarter results. While net profit was down 48% year on year to CNY 2.6 billion and only accounts for 14.9% of our full-year forecast, we view the result as largely in line, as the first quarter is a seasonally weak quarter. We think Conch remains undervalued and we see stronger momentum in following quarters, with meaningful recovery supported by improving housing starts through the second half of 2023. Having said that, it might lack positive catalysts in the near term due to the slow year-to-date demand recovery, partly affected by adverse weather conditions.

Producing more than 300 million metric tons of cement annually, Anhui Conch Cement is one of the largest cement producers in the world. Closely tied to infrastructure and real estate construction, China’s cement industry is challenged by the shift toward a less construction-intensive economy. However, we believe Conch's strong balance sheet (net cash as of the end of 2022) and best-in-class mining assets position it best to weather slowing investment in China and achieve modest market share gains at the expense of overleveraged competitors.

Narrow-moat Anhui Conch Cement’s 52.4% year-on-year decline in 2022 net income to CNY 15.9 billion is in line with previous guidance. The decrease is primarily driven by weak demand due to coronavirus restrictions and cooling real estate market, in an environment of high energy costs. We lower our fair value estimate to HKD 45 per H-share (CNY 40 per A-share) from HKD 50 (CNY 46) to reflect a slower recovery in sales and weaker selling prices. We think the shares are undervalued, underpinned by an earnings recovery in 2023 on the back of China’s reopening, steady infrastructure investment, and a mild real estate recovery. At current prices, Conch’s H shares are trading at 0.6 times 2023 price/book and a decent yield of more than 5%.

Narrow-moat-rated Anhui Conch Cement guided that 2022 net profit will decrease by 50%-58% year on year to between CNY 13.97 billion and CNY 16.63 billion, under People's Republic of China accounting standards. This is below our 2022 earnings forecast of CNY 17.76 billion, but we think investors will look past the weak results and focus on the earnings recovery in 2023. We have a positive view for 2023 as the absence of further lockdowns should help activity levels and a slow real estate recovery should buffer demand for cement. We will issue an update pending more detailed information from the firm’s final results in late March.

Narrow-moat Anhui Conch Cement’s third-quarter net profit of CNY 2.6 billion, which declined 65.3% year on year, was below our expectation. The disappointing performance was attributable to falling sales volume and rising energy costs. The cement industry was hard hit this quarter, with Conch’s peers also delivering sharply lower earnings and even making losses. We have lowered our fair value estimate to HKD 50 per H share (CNY 46 per A share) from HKD 68 (CNY 59) after considering the weaker yuan, lackluster cement demand, and higher fuel costs. While we still expect a recovery for the sector, we think it will be slow and subdued, given China’s sluggish economic growth. Despite the cut in our valuation, Conch still provides huge upside, in our view, but the share price may stay subdued in the near term pending more policy news to support the real estate sector. At the current price, Conch’s H shares are trading at 0.5 times 2022 price/book and a decent yield of more than 5%.

Producing more than 200 million metric tons of cement annually, Anhui Conch Cement is one of the largest cement producers in the world. Closely tied to infrastructure and real estate construction, China’s cement industry is challenged by the shift toward a less construction-intensive economy. However, we believe Anhui's strong balance sheet (net cash as of the end of 2021) and best-in-class mining assets position it best to weather slowing investment in China and achieve modest market share gains at the expense of overleveraged competitors.

Narrow-moat Anhui Conch Cement’s first-half 2022 net profit of CNY 10.0 billion was down 33% year on year, mainly attributable to higher operating costs and weak domestic demand. We believe this is largely expected by the market given COVID-19 disruptions and the lackluster real estate activity in China. After considering the slower first-half earnings, we now expect 2022 net profit to fall 22% before rebounding 8% in 2023. Our longer-term earnings forecasts are largely unchanged. We cut our fair value estimate to HKD 68 per H-share (from HKD 70) due to the depreciation of the Chinese yuan but our A-share fair value estimate is unchanged at CNY 59 per share. We think Conch is attractive at the current share price, given our view that sales should be supported by China’s stimulus plan and our view for the worst of the pandemic lockdowns to be past.

Producing more than 200 million metric tons of cement annually, Anhui Conch Cement is one of the largest cement producers in the world. Closely tied to infrastructure and real estate construction, China’s cement industry is challenged by the shift toward a less construction-intensive economy. However, we believe Anhui's strong balance sheet (net cash as of the end of 2021) and best-in-class mining assets position it best to weather slowing investment in China and achieve modest market share gains at the expense of overleveraged competitors.

Anhui Conch Cement’s first-quarter 2022 net profit was down 15% year on year to CNY 4.9 billion, accounting for 15% of our full-year forecast. We view the results as largely in line, given that the first quarter is seasonally a weak quarter. We think the poor performance was already expected by the market, taking into account COVID-19 lockdown measures in China. We keep our fair value estimate of HKD 70 (CNY 59) unchanged. We think Conch is currently undervalued but near-term uncertainty from COVID-19 will continue to pressure share prices.

Producing more than 200 million metric tons of cement annually, Anhui Conch Cement is one of the largest cement producers in the world. Closely tied to infrastructure and real estate construction, China’s cement industry is challenged by the shift toward a less construction-intensive economy. However, we believe Anhui's strong balance sheet (net cash as of the end of 2021) and best-in-class mining assets position it best to weather slowing investment in China and achieve modest market share gains at the expense of overleveraged competitors.

Narrow-moat Anhui Conch Cement’s 2021 results were within our expectations, with net profit down 5.4% year on year to CNY 33.3 billion on the back of higher energy costs. Our fair value estimate of HKD 70 (CNY 59) is unchanged, and we believe Conch is undervalued currently with concerns over the slowing real estate sector and rising coal prices largely priced in. We expect stable cement prices in 2022, underpinned by ongoing infrastructure investment by the government and the higher production costs. In the longer run, we have already assumed Conch’s earnings to fall gradually to take into account the slowing fixed asset and real estate investments due to China’s transition to a consumer-driven economy.