Credit Suisse Prefers China producers like CR Cement, CNBM

Credit Suisse Prefers China producers like CR Cement, CNBM
Published: 18 January 2011

Credit Suisse says major listed China cement producers cut cement prices by 7.0%-14% during the first week of January, as demand and power restrictions ease. The house estimates that the current unit gross profit is CNY20-CNY60/ton higher than its 2011 assumptions; while it expects further softening in cement prices in the coming 1-2 months, "upside risk remains in margins," particularly for producers in regions with better pricing power, such as the Yangtze Delta region and southern China. CS believes the industry’s ability to protect margins in a weak demand environment has improved over the past 10 years and margin upside will drive positive earnings momentum in 2011; its most preferred stocks are China Resources Cement, underpinned by its ongoing M&A story, and China National Building Material (3323.HK), with higher beta-to-margin upside.