Analyst Recommendation

CNBM becomes No 1 cement maker

PUBLISHED : Wednesday, 25 August, 2010, 12:00am
UPDATED : Wednesday, 25 August, 2010, 12:00am

China National Building Material Group (CNBM) overtook Anhui Conch as the nation's biggest cement producer in the first half of the year and said it will continue expanding cement production capacity in the next few years, despite warnings of oversupply from analysts.

In the first half, CNBM's sales of cement and clinker - the solid material made by the cement kiln stage of production - soared 48.3 per cent to 70.12 million tonnes, while that of Anhui Conch grew 15.6 per cent to 62.8 million tonnes.

CNBM, which is listed in Hong Kong, is also Asia's biggest producer of lightweight building materials.

Asked whether CNBM would remain China's top cement producer, company president Thomas Cao Jianglin replied: 'In future, what is more important is profitability and sales volume.'

The cement production capacity of the state-owned conglomerate would expand from 170 million tonnes in the first half to 190 million tonnes by the year's end, Cao said.

For the next two years, CNBM's cement production capacity would rise by 20 million tonnes each year, which would require an annual capital expenditure of roughly 700 million yuan (HK$799.25 million), he said. 'Our cash flow is enough to meet this capital expenditure.'

CNBM's total capital expenditure will be 5 billion yuan in the second half - less than its 7 billion yuan capital expenditure in the first half.

China's demand for cement would rise significantly in the near future, said Cao. The Chinese government has invested 60 billion yuan in the construction of 5.8 million low-income housing units this year. Construction of high-speed railways, roads, urban metro systems and dams would continue, he pointed out, all adding to demand. CNBM supplies cement to urban infrastructure and property projects in China.

Yet a JP Morgan report gave warning that, despite strong demand, an oversupply of cement would remain and possibly worsen in 2011.

In 2009, 193 million tonnes of annual cement production capacity was added in China, while only 50 million tonnes of old capacity was closed, JP Morgan said. By May this year, investments in cement production had risen 25 per cent to 316 billion yuan, equal to 82 per cent of last year's investment, the report said.

In July, JP Morgan downgraded CNBM to neutral in expectation of flat cement prices and the company's earnings growth slowing.

CNBM's revenue in all business segments soared 51.7 per cent to 21.37 billion yuan in the first half, while net profit grew 25.7 per cent to 1.07 billion yuan. Anhui Conch's net profit rose 41 per cent.