China Shanshui Cement first-half net profit falls 41 per cent

China Shanshui Cement has reported a net profit of CNY728m (US$114m) for the first half of 2012, representing a decline of 41 per cent YoY on the back of a slowing demand. In the period its operating revenue slid 5.8 per cent YoY to CNY7.38bn, with basic earnings per share of CNY0.26.

Zhang Bin, Vice Chairman and General Manager of Shanshui Cement, said: “In the first half of 2012, affected by a contraction in China’s macro economy and slowdown in fixed asset investment, industry demand slowed and overall profit eroded substantially. Nevertheless, we sought to optimise internal management and enhance the quality of production and operation; captured opportunities arising from increased Government investment in public welfare projects; and made preparations aimed at the vertical integration of our product chain. All of these efforts enabled us to achieve operating results that outperformed the industry during the review period.”

The company's cement sales declined by 5.8 per cent YoY to 21.03Mt while clinker sales increased by 16.5 per cent YoY to 4.18Mt.

Group operating companies in the Shandong and Northeastern Region performed well in the first half, according to the company. Revenue in Shandong amounted to CNY5.11bn, accounting for 69.2 per cent of the group’s total sales revenue, although down 18.3 per cent from the same period last year. In the Northeastern Region, revenue reached CNY1.97bn, accounting for 26.7 per cent of total revenue and representing YoY growth of 26.9 per cent. The company noted that the commencement of operations in Shanxi and Xinjiang will make more contributions to the group’s sales revenue.

In terms of pricing, the average selling price of cement in the Shandong region was CNY280.1/t, a decline of 6.7 per cent YoY. Shanxi also saw a drop of 21.4 per cent to CNY234.6/t. In the Northeastern region, the average price was CNY301.4/t which was 17.4 per cent higher YoY. Cement prices in Shandong and Liaoning Provinces, the core regions where the Group operates, remained relatively stable.

In a recent research note, Credit Suisse said it expects cement prices to further soften in the second half of 2012 on a YoY basis, yet the change would be moderate for Shanshui versus its peers. The house revised down earnings by 16 per cent for 2012, and 31 per cent for 2013, to reflect depressed margin outlook due to deteriorated oversupply.