Anhui Conch Cement Earnings: Recovery Slower than Expected; Shares Still Attractive

Anhui Conch Cement’s third-quarter net profit of CNY 2.2 billion fell 15% year on year and trailed our expectations. The disappointing performance was due to weak cement prices. The operating environment remains challenging this quarter, with the industry generally delivering sharply lower earnings. After considering the lackluster cement demand and lower margins, we cut 2023-25 earnings by 15%-16%. Consequently, our fair value estimate is lowered to HKD 33.00 per H share (CNY 31.00 per A share) from HKD 37.50 (CNY 34.50). While we still expect a recovery for the sector, we think it will be slow and subdued, given China’s sluggish property market. That said, our view is that Conch is undervalued currently, with H-shares trading at 0.5 times 2024 price/book.