DBS Vickers Research lowered its target price for West China Cement to HK$3.3 from HK$4, and downgraded the stock to "hold" from "buy".
It said 4M2011 Shaanxi urban FAI growth decelerated to 15.2% YoY compared with 32% YoY growth same period a year ago, well below China’s urban FAI growth of 41% YoY. The house is concerned that demand growth slowdown in Shaanxi will magnify potential oversupply of cement with the addition of 11Mta or 30% new clinker capacity in 2011.
DBS estimated WCC 1Q11 ASP was down 5% YoY to CNY270/t, whereas sales volume jumped 60% YoY thanks to decent capacity growth. Therefore, it has lowered its FY11 ASP assumption by 4% to CNY298/t to reflect the higher sales volume contribution from low grade cement products.