HSBC: China monetary easing should help stimulate demand

HSBC: China monetary easing should help stimulate demand
11 June 2012

HSBC says Anhui Conch Cement's  1H12 profit warning suggests declining profitability for cement producers in 2Q, but the ongoing monetary easing should help to stimulate demand and stabilise pricing in 2H12.

Last week the Chinese cement producer said it expects 1H profit to fall by 50 per cent YoY on the back of weaker demand for cement. The company said consumption growth for cement has been declining since the beginning of 2012 and selling prices for cement products have dropped significantly from a year earlier owing to slower growth in China's fixed-asset investment.

However, HSBC says interest rate cuts can have a positive earnings impact for cement players as it estimates the industry's average net gearing is as high as 74% in 2012, and not surprisingly, China National Building Material (CNBM) would see the most impact given its 290% of net gearing in 1Q12. Still, despite CNBM benefiting the most from the interest rate cut, Conch remains HSBC's preferred industry play as it "provides the best risk-adjusted return given its cost advantage and financial strength." (Source: Dow Jones Newswires)

Published under Cement News