HK$165m IPO helps cement firm repay debt
Allied Cement faces slowing demand growth for its product because of an economic slowdown and a credit squeeze on the mainland, said the firm's managing director yesterday at its listing ceremony.
Making its debut on the main board of Hong Kong's stock exchange yesterday, the mainland company's stock closed at HK$1.09, 9 per cent above its offer price, with 24 million shares changing hands.
Demand for cement in the Yangtze River Delta, Allied Cement's main market, would rise roughly 5 per cent to 10 per cent this year, slower than last year's 12 per cent growth, managing director Ng Qinghai said. 'Eastern China's cement market will continue to maintain stable growth.'
This year, many new infrastructure projects, including road and rail, would start in Jiangsu province, Ng said. 'We are participating in some of these projects,' he said.
However, the mainland's property market, a key consumer of cement, has cooled with tightening measures by the central government. Spending on mainland rail construction, another big cement consumer, will drop to 400 billion yuan (HK$492 billion) this year from 469 billion yuan last year, according to Beijing.
'The tight monetary conditions will affect us, but we have ample cash,' Ng said. Allied Cement raised HK$165 million from its initial public offering (IPO), of which over 90 per cent will be used to repay debt.
The historical price to earnings ratio of Allied Cement is 3.9, lower than the industrial average of 6.5, but if the one-time gain of HK$528.4 million from a land revaluation in 2010 is excluded, its adjusted price to earnings ratio would be as high as 10, according to a report by Wing Fung Financial. 'Therefore, we advise investors to stand aside at the moment,' the report said. 'We would wait for better investment opportunities after Allied Cement proves its profitability in later results.'
Allied Cement has an annual cement production capacity of 1 million tonnes but is negotiating with the local government to build a new cement plant in Shanghai which could more than double its production capacity by 2015.
'With this IPO, we will raise our company to a higher level,' Ng said.
Allied Cement is a subsidiary of Tian An China Investments, a Hong Kong-listed company.