China National Materials Co Ltd (Sinoma) said on Wednesday it is in talks in Europe and the United States for acquisitions at 1-10 billion yuan ($154 million-$1.5 billion) each after it posted a 71 percent rise in first-half earnings.

Like other mainland Chinese cement makers, Sinoma has been enjoying booming sales amid the nation's construction boom, resulting in hefty cash inflows that are helping it build a war chest for overseas acquisitions.

A firming yuan will also contribute to its purchasing power overseas, analysts say.

"This is a good time for overseas acquisitions because of the appreciation of the yuan," the company's president, Li Xinhua, told a news conference on Wednesday. "We are in talks on a number of projects."

The acquisition targets are all in Europe and the United States, valued at 1-10 billion yuan each, he said.

If concluded, the acquisitions would be the first major overseas push for the company and a key part of its expansion strategy.

"We can help them (overseas companies) to cut costs and they can lift our technology," he said.

Shares of Sinoma jumped 11.35 percent to close at HK$4.71, far outperforming a 1.6 percent gain in the benchmark Hang Seng Index.

Richard Leung, an analyst at CLSA, said overseas acquisitions would be "positive" for Sinoma's future growth, but the growth would be limited because markets in the West are mature.

He added that Sinoma's stock valuation is attractive because it is trading at six times its 2012 forecast earnings, following a more than 25 percent fall in the past three months.

Sinoma is the world's largest cement equipment maker with a record order backlog of 60.16 billion yuan at the end of June.

Sinoma's first-half net profit rose 71 percent to 766 million yuan and cash and cash equivalents at the end of June were above 12 billion yuan.

Cement equipment and engineering services accounted for more than half of the company's sales in the first half of 2011, accounting for about a third of the company's profit.

Cement production and sales remain its mainstay business, making up of nearly 60 percent of profit, thanks to strong cement demand and prices on the mainland as economic growth prompted a building boom across the country.

Asset acquisitions on the mainland have become expensive because of high cement prices, but the company will continue to look at possible acquisition targets in western China and build new production lines, Sinoma's chairman, Tan Zhongming, said.

Sinoma's controlled production capacity reached 76 million metric tons at the end of June. It has 14 production lines with a combined capacity of 23.2 million metric tons under construction.

The company is also involved in new materials industries, such as the manufacturing of glass fiber and polysilicon.

Reuters

(HK Edition 09/01/2011 page2)