外文报告：CCB-West China Cement(02233)Building a solid cement foundation-120705

China/Hong Kong
Materials – Cement




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West China Cement (2233 HK)
5 July 2012
Building a solid cement foundation
Company Rating:

Outperform
(initiation)
 Sustained cement demand recovery in Shaanxi. West
China Cement (WCC) is the largest cement supplier in
China’s Shaanxi province, where economic growth is being
driven by infrastructure investment and accelerating
urbanization. Cement demand in the province bottomed in
1Q12 with the resumption of several infrastructure projects.
We believe WCC will benefit from the continuing recovery
in cement demand in Shaanxi in 2H12 as the government
injects more FAI stimulus.
 Incremental increases in ASP on improved sector
concentration. Market share of the top-four players in the
Shaanxi market increased to 76% of total cement capacity
in the province by end-2011. Greater sector concentration
will eventually stabilize the competitive landscape and
improve the coordination of production. We expect WCC’s
cement ASP to increase in 2H12 and throughout 2013.
 Solid volume and earnings growth in 2012-2013. We
expect WCC’s cement and clinker sales volume to increase
42% YoY in 2012F and 15% in 2013F, with net profit growth
of 4% YoY in 2012F and 27% YoY in 2013F. Net margin will
weaken, in our view, from 20.8% in 2011 to 16.9% in 2012F
and 17.8% in 2013F, mainly due to an expected increase in
the effective tax rate.
 Initiate coverage with Outperform and a 12-month
target price of HK$1.95. Our valuation reflects WCC’s
sustainable earnings growth outlook, with the target price
translating to 10.0x 2012F P/E and 1.5x 2012F P/B,
implying 23.4% potential upside.
 Investment risks: (1) a slower-than-expected demand
recovery in Shaanxi; and (2) fierce price competition in
WCC’s primary operating markets.

Financial forecast
End-December 2010 2011 2012F 2013F 2014F
Revenue (RMB m) 2,961 3,190 4,077 4,923 5,790
YoY change (%) 95.2 7.8 27.8 20.8 17.6
Attributable profit (RMB m) 925 662 691 875 1,067
YoY change (%) 180.0 (28.4) 4.4 26.6 22.0
Net margin (%) 31.2 20.8 16.9 17.8 18.4
Net gearing (%) 15.0 66.6 72.4 61.8 49.3
Weighted EPS (RMB) 0.26 0.16 0.16 0.21 0.25
P/E (x) 5.1 8.3 8.0 6.3 5.2
Yield (%) 1.4 1.1 2.8 3.5 4.3
ROE (%) 38.0 17.1 15.5 17.3 18.4
BVPS (RMB) 0.98 0.96 1.08 1.24 1.44
P/B (x) 1.3 1.4 1.2 1.0 0.9
Source: Company data, CCBIS estimates


Price: HK$1.58
Target: HK$1.95
(initiation)

Trading data
52-week range HK$1.03 – 2.97
Market capitalization (m) HK$7,185/US$927
Shares outstanding (m) 4,547
Shares free float (%) 57
Adjusted beta 1.24
3M average daily T/O (m share) 16.2
3M average daily T/O (US$m) 3.6
Expected return (%) – 1 year 23
Closing price on 4 July 2012
Stock price vs. HSCEI
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
Jun-11 Aug-11 Oct-11 Dec-11 Mar-12 May-12 Jul-12
HK$
WCC HSCEI (rebased)

Source: Bloomberg




Eliza Liu, CFA
(8610) 6652 3728
liuhongke@http://wendang.chazidian.com

Sara Song
(8610) 6652 3725
sarasong@http://wendang.chazidian.com

Timothy Sun
(852) 2532 6746
timothysun@http://wendang.chazidian.com