Anhui Conch Cement Earnings: Improvement Expected; H-Shares Undervalued

Narrow-moat Anhui Conch Cement’s first-quarter 2024 net profit was down 41% year on year to CNY 1.5 billion and only accounts for 15% of our full-year forecast. However, we view the results as broadly in line, given that the first quarter is seasonally weak. We maintain our fair value estimate of HKD 29.00 per H-share (CNY 26.50 per A-share). With H-shares trading at 0.4 times 2024 price/book and an estimated yield of close to 6%, we think the shares are attractive to long-term investors. That said, Conch’s earnings are sensitive to demand from the real estate sector. We believe a meaningful recovery in the housing market will be the key driver for share price performance. This is likely to be slow, with the market only expected to bottom in 2024.