Anhui Conch Cement, China's biggest maker of construction materials, is taking big steps to ensure it can keep up with demand this year.

The company will use 52 percent of its planned 12-billion-yuan A-share placement to boost its cement production capacity to 179 million tons.

Additionally, 17 percent of listing proceeds will be spent on energy-saving facilities, and the remaining money will be used to make acquisitions.

Anhui Conch got approval early this month to issue no more than 200 million new A-shares, or 13 percent of the company's enlarged share capital, within six months.

"We are confident that we will be able to issue shares at a good price," Chairman Guo Wensan said.

The company plans to earmark 46 billion yuan for expansion in the next 3 years. Other money will come from bank loans and internal resources.

It hopes to not only strengthen its network in East China, its home market, but also expand its capacity in Central, South and West China.

Anhui Conch's first-quarter revenue increased 27.46 percent to 4.61 billion yuan, and its net profits jumped 98.51 percent to 449.6 million yuan.

Its gross profits margin increased slightly to 25.3 percent but was lower than last year's quarterly average of 31.5 percent, as the first quarter is traditionally an off season for the industry. Executive Director Guo Jinbin said the company's gross profits margin should rise to between 35 and 40 percent.

The company's product price increased to 214 yuan per ton on average, up 9.2 percent from the same period last year.

As the production costs were boosted by energy costs, Anhui Conch put its residual heat production facilities into operation last year. Guo said the self-production of electricity can completely offset the surge in coal costs.

"The business contributed 300 million yuan in profits in 2007, and the figure will be 900 million yuan and 1.2 billion yuan this and next year," Guo said. "This will improve our core competitiveness when other cement makers have to bear the surging costs."

The cement industry's capacity expansion slowed down in 2006 and 2007 due to the excessive supply. Government policies and stiff competition have forced smaller cement makers to close down or be acquired.

Unlike competitor China National Building Material, Anhui Conch will concentrate on increasing capacity for the time being. It will focus more on acquisitions in five years.

"The acquisition costs are higher than increasing capacity, while profits are lower as it needs to upgrade those backward facilities after acquisitions," Guo said.

JPMorgan said in a research report that Anhui Conch's first-quarter results are ahead of its forecast. It expects the average selling price and earnings in the second quarter to continue growing, both quarter-on-quarter and year-on-year.

The bank maintained its "overweight" rating on the stock with price target of HK$80.

Anhui Conch's shares closed at HK$63, up 5.35 percent yesterday.

(HK Edition 04/24/2008 page2)