Anhui Conch Cement Earnings: Disappointing Results, but Silver Lining in Market Share Gain

Anhui Conch Cement’s 48% year-on-year decline in first-half net profit to CNY 3.49 billion is disappointing, mainly due to a lower average selling price and weak cement demand. However, we think Conch still outperformed its peers given that the industry was loss-making during the period, according to Digital Cement. While we still expect second-half results to improve sequentially, we have toned down our forecasts to account for China’s sluggish economic growth and slow recovery in the real estate industry. As such, we lower our 2024-26 earnings forecasts by 17%-20% and cut our fair value estimates to HKD 26.00 per H-share (CNY 23.90 per A-share) from HKD 29.00 (CNY 26.50). We believe Conch remains undervalued, with its H-shares trading at 0.4 times 2024 price/book and a dividend yield of close to 5%. Given its strong balance sheet and net cash position, we think Conch will be able to navigate the current industry downcycle.