Anhui Conch Cement’s Weak 1H 2022 Dragged by High Coal Prices and Lower Demand; Shares Attractive

Narrow-moat Anhui Conch Cement’s first-half 2022 net profit of CNY 10.0 billion was down 33% year on year, mainly attributable to higher operating costs and weak domestic demand. We believe this is largely expected by the market given COVID-19 disruptions and the lackluster real estate activity in China. After considering the slower first-half earnings, we now expect 2022 net profit to fall 22% before rebounding 8% in 2023. Our longer-term earnings forecasts are largely unchanged. We cut our fair value estimate to HKD 68 per H-share (from HKD 70) due to the depreciation of the Chinese yuan but our A-share fair value estimate is unchanged at CNY 59 per share. We think Conch is attractive at the current share price, given our view that sales should be supported by China’s stimulus plan and our view for the worst of the pandemic lockdowns to be past.