Good times are back for Chinese cement firms amid building frenzy in south, east

HONG KONG/SINGAPORE Mon Oct 28, 2013 11:41pm EDT

HONG KONG/SINGAPORE Oct 29 (Reuters) - China's main cement producers, such as Anhui Conch , are expected to resume profit growth this year, boosted mainly by infrastructure and property investments in the country's bustling eastern and southern regions.

Top cement firms are expected to benefit from construction projects in eastern provinces such as Jiangsu and Zhejiang and Guangdong in the south, and a government push to consolidate the overcrowded sector.

After posting profit declines last year, cement firms such as Anhui Conch Cement Co Ltd, Asia Cement China Holdings Corp and Huaxin Cement Co Ltd, are expected to return earnings growth for the full year as low coal prices have helped reduce production costs.

So far, major listed cement makers have posted strong nine-month results, with several doubling profits from last year.

"We continue to prefer east China and south China, where we see higher margins. We believe the market in north China will be stable with low margins," CLSA said in a report.

However, analysts warn that a significant cooling in China's red-hot property sector, a slowdown in railway investments and a bigger-than-expected rebound in low coal prices could take some shine off cement makers' prospects.

Some analysts have also warned the strength in certain infrastructure investments could result in a buildup of inventory.

"In the short term, we expect cement ASPs (average selling prices) will likely peak out earlier than market expectations, as we believe supply-demand dynamics are worsening, the slowdown in railway fixed-asset investment more than offsets the marginal property FAI improvement," Nomura said in a report.

GOOD TIMES

The latest to announce results was Anhui Conch, which produces and sells cement and clinker, and is the largest Hong Kong-listed Chinese cement maker.

It posted a 37 percent rise in nine-month net profit to 5.38 billion yuan ($884.3 million), outpacing 4.3 percent growth in the first half and a sharp reversal from a 45 percent fall seen in 2012 earnings.

Anhui Conch, which has a strong presence in China's eastern and southern regions, attributed the profit rise to rising selling prices that resulted in higher overall sales.

Also citing strong sales and lower production costs, Asia Cement reported a 166 percent jump in January-September net profit to 391 million yuan, while Huaxin Cement's earnings rose 131 percent to 558 million yuan.

Smaller player Gansu Qilianshan Cement Group Co Ltd saw its net profit surge 118.5 percent to 365.32 million yuan during the period.

With the latest results, cement firms look set to end the year with strong growth.

Anhui Conch, which analysts say ranks second with about an 8 percent market share in China - just after China National Building Material Co Ltd - is expected to post a net profit of 8.4 billion yuan in 2013, according to the average estimate on Thomson Reuters I/B/E/S.

That would be up by a third from 6.3 billion yuan in 2012 when net profit fell 45 percent. (Reporting by Meg Shen in HONG KONG and Chyen Yee Lee in SINGAPORE; Editing by Jeremy Laurence)

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