Company says higher selling prices of cement giving it a boost

Anhui Conch Cement Co Ltd, China's second-largest cement maker by output capacity, said its net profit for the first quarter of 2011 could rise by more than 150 percent year-on-year due to higher selling prices.

According to Executive Director Guo Jingbin, unit gross profit increased to around 120 yuan per metric ton in the first quarter from 80 yuan per metric ton last year. He expected the level to remain steady for the rest of the year. The company's profit for the first quarter of 2010 was 792 million yuan.

Anhui Conch closed at HK$48.85 per share on Wednesday, up 3.45 percent from the close of trading Monday. The market was closed Tuesday due to a holiday. The benchmark Hang Seng Index closed at 24285 on Wednesday, up 0.56 percent.

Chan Fung-chu, an analyst with Shenyin Wanguo Research, said in a note that the profit alert from Anhui Conch sent the cement sector up across the board by 2-4 percent by the end of the trading day on Wednesday. Thanks to the national policy of affordable housing and infrastructure projects, both the price and sales volume of cement will be further supported in 2011, she added.

China plans to build 36 million units of affordable housing over the next five years, with the construction of the first 10 million units starting in 2011.

"Implementation of all these measures will serve to facilitate the stable growth of cement demand," said Anhui Conch in a statement.

Property-related sales accounted for around 35 percent of overall cement sales last year, Guo told a press conference on Wednesday, adding that the ratio could rise even further in 2011.

According to the company's statement, its 2011 capital expenditure budget is 9 billion yuan, mainly for the expansion of production capacity. Anhui Conch's sales targets for 2011 and 2012 are 170 million metric tons and 200 million metric tons respectively, according to Guo.

"The 9 billion budget does not take merger and acquisition activities into account. We will look at such opportunities in regions like western and central China," said Guo, adding that while the company's primary targets will be cement business, downstream businesses such as concrete will also be considered.

Anhui Conch plans to issue 9.5 billion yuan in corporate bonds if the market conditions prove to be favorable, Guo added.

Anhui Conch's main businesses are located in East and South China. In a March research report by CITIC Securities International, analysts wrote that the cement industry is witnessing increasing synergy by leading players through mergers, acquisitions and restructuring.

"Synergy will be a crucial factor boosting cement prices in the peak season," said the report.

For full-year 2010, Anhui Conch's net profit was 6.16 billion yuan, up 75.8 percent compared with 2009. Revenue was 34.51 billion yuan, up 38.04 percent on 2009. It sold 137 million metric tons of cement and clinker, up 15.89 percent year-on-year.

China Daily

(HK Edition 04/07/2011 page3)