Anhui Conch earnings outlook raised, China

Despite Anhui Conch posting a 67 per cent YoY decline in third quarter net profit, Credit Suisse and Citigroup see an improved outlook for the Chinese cement major.

Credit Suisse said that Conch’s results "were solid in the context of a very difficult quarter for the industry”. The house estimates unit gross profit to average at CNY80/t in 4Q12, leading to a potential net profit of CNY2.4bn. "We believe consensus downgrades have come to an end at this point, and estimate that the market is looking for a CNY70-CNY75/t unit gross profit for 2013 – reasonable scenarios given the lower industry average utilisation, stable demand and efforts on supply discipline in Yangtze River Delta," CS said.

Meanwhile, Citigroup has lifted its target price for Anhui Conch to HK$28.9 from HK$22.1, and maintained its "neutral" rating.

It said Conch sold roughly 53Mt cement and clinker in 3Q, up 33 per cent YoY versus the industry average growth of seven per cent, New lines launched in 2Q fully were ramped up in 3Q, driving the volume growth. Citi noted that other cement producers in the East surrendered volumes to accommodate Conch's new lines, in exchange for Conch's support to lift cement price from September onwards. But the house believes the price lift is seasonal instead of structural.

Citi raised Conch’s 2012 and 2013 earnings by 28 per cent and 34 per cent, respectively, to factor in higher volume and lower coal cost.