CNBM banks hopes on higher product prices

PUBLISHED : Saturday, 30 August, 2008, 12:00am
UPDATED : Saturday, 30 August, 2008, 12:00am

China National Building Material expects strong net profit growth in the second half and next year as it raises cement prices to offset rising coal costs, the company said.

The mainland's second-largest cement producer believes prices will grow to US$80 a tonne within three years, supported by high demand for cement in infrastructure projects, despite a slowdown in the real estate sector.

The company's current selling price for cement is about 250 yuan (HK$286) a tonne, up almost 20 per cent from 210 yuan during the first six months.

'We believe that the price would maintain the current level or even go up during the rest of the year,' said chief executive Cao Jianglin.

He also said the company would pass on to customers the rising cost of raw materials, including coal.

The company reported on Tuesday that first-half net profit more than doubled to 545.55 million yuan as revenue surged 169.6 per cent to 9.82 billion yuan amid rising demand and production. It acquired seven companies in the second half of last year and the first half of this year.

Mr Cao said its total cement producing capacity would rise to 120 million tonnes by the start of next year.

The management said its parent company would acquire two firms in Zhejiang and Hunan provinces in a year or two, which will gradually be acquired by CNBM.

The company said earlier it planned to spend 33.3 billion yuan on acquisitions to expand in the southern region and the Huaihai area.

The government has been encouraging big cement producers to acquire smaller ones.

The company's debt-equity ratio at the end of the first half was 203.5 per cent, compared with 104.9 per cent a year earlier.

But management does not regard it as an issue. 'We are not worried about the high gearing ratio because we have a strong cash flow of more than 3 billion yuan and we want to take advantage of the growing cement market to expand our business,' Mr Cao said.

In a Deutsche Bank report, analyst Julian Zhu said: 'CNBM would eventually increase the overall profitability of its cement business substantially on the back of higher market share and better control on cost.'

The company's current cement market share is 40 per cent in Hunan province and 50 per cent in Zhejiang province.