West China Cement Chairman Zhang Jimin (center), accompanied by other top executives, speaks to local media in Hong Kong Monday about the company's IPO. Emma An / China Daily

West China Cement Limited (WCC) said Monday it will further expand its production capacity in the next several years with the funds from a Hong Kong initial public offering.

The Shaanxi-based cement maker hopes to raise up to HK$1.39 billion by selling about 823 million new shares at HK$1.21 to HK$1.69 each, the company told a press briefing in Hong Kong.

Trading of the company's shares is expected to commence August 23, when the company will be simultaneous de-listed from the Alternative Investment Market of the London Stock Exchange, where the company has been listed since December 4, 2006.

The funds to be raised from the IPO will be primarily used for the operation of newly acquired production facilities, said Chairman Zhang Jimin, who expects robust demand ahead due to government restrictions on capacity expansion during the past several years.

"While the supply and demand of cement in China's more developed eastern regions has achieved quite a balance, western regions are still sharply short of cement supply, which provides enormous potential for us to grow," Zhang said.

WCC, the second largest cement producer in Shaanxi province with an annual production capacity of 9.6 million tons as of July 30, currently operates eight cement production lines, with two more under construction, which together will add 2.2 million tons in capacity upon completion.

"We set the target when we entered into the London Stock Exchange's AIM of an annual capacity of 10 million by 2010, and we have reached our target earlier than expected," Zhang said.

The company's annual production capacity has soared from 1.4 million to around 10 million tons within five years.

WCC is on course to become the largest cement producer in Shaanxi province by the end of 2010, according to Tian Zhenjun, the company's deputy chief executive officer.

The past several years have witnessed a slew of WCC acquisitions of local leading cement producers in the region where the company believes cement demand will continue to grow with the launching of government-led infrastructure projects like expressway and railway construction.

"The strong urbanization drive seen in China's western areas has fuelled the demand for cement. We are going to make ourselves better positioned for the opportunities through further expansion," Zhang said.

The years from 2007 to 2009 saw WCC's net profit increase from approximately 150.3 million yuan to about 330.5 million yuan, representing a compound annual growth rate of 48.3 percent.

"We have maintained a remarkable gross profit margin of around 40 percent, which is exceptional in the cement production industry, whose average gross profit margin stands at 15 to 20 percent," said Zhang, who suggested that the pricing power the company has developed with its high production capacity largely contributes to this profitability.

The company is negotiating with a third-party cement producer for a potential acquisition expected to be completed by year's end.

China Daily

(HK Edition 08/10/2010 page3)